Union Pay Demands Seen to Weigh Heavily on Economic Recovery

The demands expected to be made by Germany's leading trade unions in the next round of sector wage talks will place a heavy burden on the country's economy in 2002, chief economists surveyed by Handelsblatt warned.

The economists said that even sector wage increases of just 2% would put any economic recovery at risk next year.

Alongside IG Metall, which on Monday is expected to call for a 5-7% pay increase, Germany's biggest union, Verdi, which represents some three million service-sector workers, said on Friday it will push for a "sharp rise in real wages" in pay rounds due to begin next year.

Martin Höfner, chief economist at HypoVereinsbank, said that even pay increases of more than 1% could not be justified.

"The employed cannot help themselves at the expense of the unemployed," he argued.Höfner's view was echoed by Deutsche Bank's chief economist Norbert Walter, who said that during a recession and with the inflation rate at 1.5%, wage demands of more than 2% were" unacceptable" even in a country with lower unemployment than Germany.

A slightly less tough line was taken by Michael Hüther at DGZ-Deka Bank and Klaus F. Zimmermann, president of the DIW economic research institute. "A wage increase demand of more than 3% would be poison for the economy," Hüther said, with Zimmermann arguing that a 3% rise in wages would represent the "absolute upper limit".

"Higher wages will not boost the economy," he stressed. The trilateral Alliance for Jobs between government, industry and trade unions is unlikely this time to exert a moderating influence in the upcoming pay talks.

Even though all parties affirmed their intention of continuing the Alliance, trade union representatives said they were not willing to negotiate wage policy within "the restrictions of national economic framework conditions".

Chancellor Gerhard Schröder (SPD) at the weekend appealed to the unions to take a sensible approach to the negotiations.