A long night of negotiations between public sector union Verdi and employers reached the deal on Saturday morning, leaving union leader Frank Bsirske and German Interior Minister Hans-Peter Friedrich relieved.
"We want to give public sector employees fair pay," said Friedrich on Saturday.
Public sector workers, who have staged a series of nationwide strikes over the past month, will receive a backdated pay rise of 3.5% from March 1st.
Further rises of 1.4% will follow in January and August 2013. Workers over 55 will now receive 30 days of holiday, while their younger colleagues get 29 days off a year.
Bsirske said the outcome would not have been possible without the determination of the strikers over the past weeks. The union had succeeded in “securing long-term real wages for 2012 and 2013.”
A small group of representatives of employers and unions has been locked in more than 40 hours of talks in Potsdam since Wednesday. Union negotiators needed another seven hours of talks over Friday night and Saturday morning before voting to pass the new agreement by a narrow margin.
The union had demanded a rise of 6.5% which Friedrich earlier described as unrealistic, and a social component minimum increase for workers in the lowest pay bracket, which they did not receive.
Thomas Böhle, the lead negotiator for local municipalities who employ the workers and will have to fund the pay increases, said on Saturday he was relieved that further strikes were off the cards but that the agreement would push local authorities further into debt.
Both Friedrich and Böhle said the agreement pushed public finances “to the pain threshold.”