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ECONOMY

Trade unions switch to aggressive strategy

After years of agreeing to moderate pay hikes to safeguard jobs, Germany's powerful unions are gearing up for a dramatic change of strategy, bidding for wage gains that bosses say could derail the recovery.

Trade unions switch to aggressive strategy
Photo: DPA

Heavily dependent on exporting quality German-made products, the economy, Europe’s biggest, was hit harder than most by the global crisis but now appears to be recovering faster as demand across the globe picks up.

Foreign orders are booming, the country’s low unemployment has been hailed as a “jobs miracle,” top firms are reporting strong profits and consumer and business confidence levels are soaring.

And having contributed, they say, to this performance by not pushing for pay rises during the tough times, trade unions want a slice of the pie now the recovery is setting in.

“In this first wage round after the crisis, we want to ensure employees get their fair share of the upswing,” Berthold Huber, head of IG Metall, one of Europe’s biggest unions, wrote in the Rheinischer Merkur daily. “That is good for the employees, good for the economy and secures jobs.”

“We want our part of the recovery,” said Oliver Burkhard, another senior official from IG Metall, which represents more than two million workers in the steel and metalworking industry. The unions have German public opinion and many economists on their side.

A recent poll for ARD television showed that seven in 10 Germans thought union demands for a three-percent pay rise was “appropriate.”

Peter Bofinger, one of the “five wise men” that advise Chancellor Angela Merkel on economic policy, called for a “strong increase in wages of at least three percent” saying it would boost Germany’s sluggish domestic demand.

Horst Seehofer, head of the Christian Social Union, Bavarian sister party of Merkel’s Christian Democratic Union, said in a recent interview he “absolutely” understood union demands for higher wages.

Unions have been “unbelievably responsible” in the past two or three years, which has enabled Germany to overcome the global slump better than many of its European neighbours, Seehofer said.

Fearing mass lay-offs amid plunging growth, IG Metall agreed in February a two-year deal with a pay freeze and a one-off payment in 2010 followed by a 2.7 percent hike next year.

On the other side of the negotiating table, employers’ federation head Dieter Hundt warned it was “premature” to talk of wage hikes as the German economy is not yet completely out of the woods.

Some also caution that the unions’ change of strategy could lead to German inflation taking off and eventually to European Central Bank interest rates climbing off their record low levels.

“German inflation slumbers but the alarm has been set,” Commerzbank economist Eckart Tuchtfeld wrote Friday in a research note about German wage policy.

But the Financial Times Deutschland said bosses should not fear increased union pay demands as labour leaders have shown they can be responsible when times are tough.

“For unions to demand massive wage increases in light of the DAX (stock market) … would of course be ridiculous, as the upswing is still too fresh and risky,” the newspaper wrote in a recent editorial.

“But companies should not fear moderate demands, as unions have actually in recent years demonstrated that they are more sensible than some have claimed.”

Nevertheless, Hundt warned that workers should wait until the upswing has fully taken hold before expecting a share of the proceeds. “We must not put the current recovery at risk,” he told German radio. “It’s still not yet time to start partying.”

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ECONOMY

German consumer prices set to rise steeply amid war in Ukraine

Russia's war in Ukraine is slowing down the economy and accelerating inflation in Germany, the Ifo Institute has claimed.

German consumer prices set to rise steeply amid war in Ukraine

According to the Munich-based economics institute, inflation is expected to rise from 5.1 to 6.1 percent in March. This would be the steepest rise in consumer prices since 1982.

Over the past few months, consumers in Germany have already had to battle with huge hikes in energy costs, fuel prices and increases in the price of other everyday commodities.

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With Russia and Ukraine representing major suppliers of wheat and grain, further price rises in the food market are also expected, putting an additional strain on tight incomes. 

At the same time, the ongoing conflict is set to put a dampener on the country’s annual growth forecasts. 

“We only expect growth of between 2.2 and 3.1 percent this year,” Ifo’s head of economic research Timo Wollmershäuser said on Wednesday. 

Due to the increase in the cost of living, consumers in Germany could lose around €6 billion in purchasing power by the end of March alone.

With public life in Germany returning to normal and manufacturers’ order books filling up, a significant rebound in the economy was expected this year. 

But the war “is dampening the economy through significantly higher commodity prices, sanctions, increasing supply bottlenecks for raw materials and intermediate products as well as increased economic uncertainty”, Wollmershäuser said.

Because of the current uncertainly, the Ifo Institute calculated two separate forecasts for the upcoming year.

In the optimistic scenario, the price of oil falls gradually from the current €101 per barrel to €82 by the end of the year, and the price of natural gas falls in parallel.

In the pessimistic scenario, the oil price rises to €140 per barrel by May and only then falls to €122 by the end of the year.

Energy costs have a particularly strong impact on private consumer spending.

They could rise between 3.7 and 5 percent, depending on the developments in Ukraine, sanctions on Russia and the German government’s ability to source its energy. 

On Wednesday, German media reported that the government was in the process of thrashing out an additional set of measures designed to support consumers with their rising energy costs.

The hotly debated measures are expected to be finalised on Wednesday evening and could include increased subsidies, a mobility allowance, a fuel rebate and a child bonus for families. 

READ ALSO: KEY POINTS: Germany’s proposals for future energy price relief

In one piece of positive news, the number of unemployed people in Germany should fall to below 2.3 million, according to the Ifo Institute.

However, short-time work, known as Kurzarbeit in German, is likely to increase significantly in the pessimistic scenario.

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