Wednesday November 12, 04:35 PM
Pay deal averts major strike in Germany
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BERLIN (AFP) - A moderate pay deal clinched Wednesday averted a strike by 3.6 million German metal and electronics sector workers that had threatened to deal another blow to Europe's largest economy.
Employers and union IG Metall in Baden-Wuerttemberg, which usually serves as a model for other states, said they had agreed to a 4.2-percent wage increase over an 18-month period.
It fell short of the eight percent Germany's biggest industrial union had originally sought.
The agreement foresees two increases of 2.1 percent next year plus a one-off payment of 510 euros (640 dollars) covering November, December and January, a statement said.
The accord, struck after 23 hours of hard bargaining, follows nationwide warning strikes since October 31 in which more than 500,000 workers across Germany participated.
IG Metall boss Berthold Huber described the agreement as fair given the "historically difficult situation" in Germany's economy.
But he added, "it's not an agreement that leaves us euphoric."
The warning strikes came at a bad time for companies in Europe's biggest economy as a slew of data shows that it is being hit hard by the global economic slowdown. Consumers meanwhile have had to deal with sky-rocketing food and energy prices.
The government has slashed its 2009 growth forecast to just 0.2 percent amid weakening demand for goods from the world's biggest exporter, the slowest rate of growth since the 2003 recession when output shrank 0.2 percent.
Earlier Wednesday, a group of top economic experts advising the government said the economy was grinding to a halt and would not grow at all next year.
Employers also seemed satisfied with the deal.
"The whole package is appropriate in this uniquely difficult environment, gives our workers more money despite the crisis and gives companies a large degree of cost flexibility for a difficult year in 2009," said the head of Baden-Wuerttemberg's employers association, Jan Stefan Roell.
Bank of America (NYSE: IKJ - news) analyst Holger Schmiedling said that the deal would undoubtedly lead to job cuts but that there was now less danger of an inflation spiral adding to Germany's economic woes.
"Higher wages will still cost jobs. In a recession, all wage increases do. But the risk that wage inflation could accelerate and spill over into higher consumer prices now looks more remote than ever," Schmiedling said.
The European Central Bank has been keeping a close eye on the talks as it seeks to keep inflation in the 15-country euro area under control.
The moderate nature of the wage increases should give the bank more leeway to cut interest rates to spur economic activity in the future, economists said.
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