Germany was saved the prospect of major industrial strikes crippling its nascent economic recovery, as the IG Metall trade union agreed to a new wage deal with employers on Thursday.
The deal will avert a widespread labor dispute.
Negotiations going into the wee hours of the morning led to an agreement for the union's so-called "pilot district" in the southwestern state of Baden-Württemberg that will likely be applied to metal and engineering workers throughout the country.
The 26-month contract will raise wages by 2.2 percent from March 2004 and by 2.7 percent from March 2005. IG Metall, which had staged brief work stoppages over the past two weeks and had threatened a full-blown strike by the end of the month, had originally sought a four percent increase.
"This is without question a good deal," German Chancellor Gerhard Schröder said on Thursday. "It will help move the economy forward."
Many in Berlin had feared a bruising labor dispute with IG Metall's 3.5 million workers that could have had a disastrous effect on Germany's economy, which is only now starting to shake off the grips of recession. After shrinking 0.1 percent in 2003, the government expects a growth of around 1.7 percent this year.
The deal in Baden-Württemberg covers some of Germany's top industrial companies including carmaker DaimlerChrysler. Employers were unable to push through a key demand to return to the 40-hour workweek without extra pay -- something the union had fought vehemently against.
"We are pleased that we could convince the employers of the hopelessness of their undertaking," IG Metall chairman Jürgen Peters said.
However, the union did make the concession that more flexible hours could be applied to specific companies. If union representatives at a factory now agree, management can increase the standard 35-hour week without hiking workers wages.
"It looks like a fair compromise. I don't see any inflationary impact and it's a step forward in terms of labor flexibility," Manuela Preuschl, an economist at Deutsche Bank in Frankfurt, told the Reuters news agency. "It's also a good signal for other sectors. I don't see any major pay disputes arising in the construction and chemical sectors now."
The deal will also likely give IG Metall's boss Peters some breathing space. If the pay dispute had escalated into a messy labor battle, the beleaguered Peters could have faced ouster at the head of Germany's largest manufacturing trade union after lead IG Metall into a failed strike last summer in a vain attempt to shorten the workweek in eastern Germany from 38 to 35 hours at a time when many in the former communist east were unemployed. That started a power struggle between traditionalists and modernizers in the union who felt the old school leftist Peters wouldn’t be able to help IG Metall adapt to the realities of modern industrial Germany.