Germany steels itself for a rash of pay demands

Steel workers protest on the company grounds of ThyssenKrupp Steel in Duisburg. Patrick Stollarz / AFP

With the country's economic recovery eclipsing the rest of Europe, German workers say the time has come to put their hands up for a share of the financial spoils The news that German workers are starting to demand big wage increases will have pleased policymakers around Europe because it raises the prospect of significant gains in German consumer spending and in imports from neighbouring countries.

Germany's chronic trade surplus has long been a source of friction with its European partners and France, in particular, has been urging Germany to fire up its domestic demand to remove what it calls a damaging imbalance in the European economy. So German steelworkers unwittingly did France a favour last week by starting warning strikes in defence of a 6 per cent pay claim. The outcome of negotiations for the 85,000 employees in this booming sector is widely expected to set a benchmark for other industries.

Talks for public employees start at the end of the year, followed by two other big sectors, chemicals and construction, early next year. Even Angela Merkel, the chancellor, said she hoped the improvement in corporate earnings would be reflected in wage agreements. The unions do have a strong case for getting more pay. Firstly, Germany's economic recovery has eclipsed the rest of Europe this year thanks to soaring exports of cars, chemicals and machinery.

Secondly, millions of German workers have settled for moderate wage hikes, pay freezes and even cuts over the past decade while their colleagues around Europe were enjoying steady pay rises. According to figures released by the Federal Statistics Office this month, German gross wages rose by just 21.8 per cent from the start of 2000 until the first quarter this year, far below the EU average increase of 35.5 per cent. Adjusted for inflation, German incomes have declined, even during the 2004 to 2008 period when the economy was doing well.

That moderation has helped fuel the current boom. Unit labour costs have fallen sharply in recent years, making German companies more competitive in foreign markets. And last year, while French workers were kidnapping their managers in protest at redundancies during the global economic crisis, German employees showed characteristic discipline by agreeing to pay cuts in return for guarantees they could keep their jobs.

Bodo Uebber, the chief financial officer of Daimler, calculated the carmaker saved €1.8 billion (Dh9.22bn) in labour costs last year alone thanks to a variety of pay cuts agreed by its workforce. That readiness by workers to make sacrifices enabled Daimler and many other German companies to avoid mass redundancies. With their workforces intact, they have been able to respond quickly this year to the surprisingly strong surge in worldwide demand.

Predictably, employers are arguing that the economic recovery is too fragile to warrant big pay increases, and that companies need to get their balance sheets back in order following the biggest economic slump last year since the 1930s. "The firms must get their strength back," said Martin Kannegiesser, the president of Gesamtmetall, the engineering employers federation. Such arguments are unlikely to gain much sympathy from trade unions at a time when many companies are raking in profits and Germany is in the midst of its biggest boom since unification in 1990.

Nevertheless, hopes of major increases for the broad mass of German workers this year or next are likely to be dashed. Steelworkers make up only a small proportion of the 3.4 million people employed in Germany's largest industry, the metalworking and engineering sector, most of whom are locked in an industry-wide pay contract that runs until 2012. Public-sector workers, meanwhile, will have a difficult time arguing for major pay rises at a time when state debt is at a record high and the government has just embarked on an €80bn austerity programme.