Call for Higher Wages

Beck, whose SPD traditionally enjoys close ties to Germany's powerful trade unions, said that after years of moderation, it was the workers' turn to get a bigger slice of the cake. "It is time for a wage policy that grants employees appropriate pay increases," Beck told the mass-market Bild am Sonntag newspaper.

"Out of fairness but also in the interest of the economy, we need wage agreements that are appropriate to the economic situation," he added.

Beck said that in recent years sector wage agreements had been "very moderate" due to anemic economic growth but that it was now sensible to boost workers' buying power.

The SPD serves in a left-right 'grand coalition' with Chancellor Angela Merkel's conservative Christian Union bloc.

The powerful electrical, engineering and metalworking sector union IG Metall agreed to a three-percent wage increase in April covering the period from June to March 2007. The next round of negotiations is set for early 2007.

Union chiefs back call for larger slice of the cake

The head of the industry employers' association Gesamtmetall, Martin Kannegiesser, said he agreed the sector's 3.4 million workers deserved "an appropriate share of the growth and success" it had seen in recent months.

He told Sunday's Neue Osnabrücker Zeitung that the German sector had begun to tap into the industry's global boom and that was time to reward workers. But he warned against "exaggerated" wage hikes that he said could nip the upturn in the bud by making German products on the world market too expensive.

For its part, IG Metall said it expected a clear increase in pay in 2007. "The economic situation in 2007 will be significantly better than in this year. The upcoming wage outcome must reflect that," the IG Metall chief in the western state of North Rhine-Westphalia, Detlef Wetzel, told the Bild am Sonntag.

Union officials said that demands for a pay raise next year ranged from five to eight percent.

Growth forecasts underestimate German potential

The government is officially forecasting growth of 2.3 percent this year, followed by 1.4 percent in 2007 and 1.75 percent in both 2008 and 2009 -- rates considered conservative by independent observers.

With business confidence at a 15-year high and consumer confidence stronger than it has been for five years, the Bundesbank, the Organization for Economic Cooperation and Development and the International Monetary Fund have upgraded their growth forecasts for Germany this year and next year.

The optimism comes despite plans to raise the Valued Added Tax by full three percentage points to 19 percent with effect from January 1, the biggest-ever increase in sales tax in Germany.