Fears over German public sector pay

Fears over German public sector pay

By Hugh Williamson in Berlin

Published: April 1 2008 02:24 | Last updated: April 1 2008 02:24

German public sector workers on Monday received an 8 per cent pay increase spread over two years, in a wage deal likely to heighten concerns in the European Central Bank over inflationary pressures in Europe’s largest economy.

The settlement – the highest in the public sector since 1992 – is the latest in a string of above-inflation wage agreements in Germany in recent months, marking a clear break with the belt-tightening of previous years.

Wolfgang Schäuble, interior minister and chief government negotiator, said the increase was costly but acceptable because public service employees such as nurses, rubbish collectors and transport staff “have a right to a fair share in Germany’s positive economic development”.

His comments – in line with other government statements in recent months backing big wage increases – are likely to worry the ECB, which fears a spiral of higher costs leading to higher wage settlements. German inflation leapt to 3.2 per cent last month, compared with 2.9 per cent in February, according to official figures last week.

The pay settlement, covering at least 1.3m workers, involves a €50 ($79, £40) monthly pay increase for all employees, plus a 3.1 per cent rise this year. A further 2.8 per cent increase follows in 2009, plus a one-off payment of €225. In exchange some employees in western Germany will have to work 30 minutes extra per week.

The settlement was seen on Monday as a victory for the Verdi services trade union, which had threatened to mount national strikes this month if no deal was reached. Frank Bsirske, Verdi chairman, said the increase would boost domestic consumption, the weakest element in Germany’s economic recovery.

The settlement will cost the federal government and local authorities about €10.7bn. Economists at Royal Bank of Scotland warned in a statement that this would “contribute to a deterioration in Germany’s public finances” in the next few months – a period when fiscal revenue flows were in any case set to start slowing, the bank warned.

So far this year steel workers and train drivers have reached settlements worth 5.2 per cent and 11 per cent respectively. Chemical workers are due on Tuesday to hold talks on a 7 per cent wage increase, and negotiations in the engineering industry are due in the autumn.

The settlement will be a relief to the German public, who had feared disruption to hospitals and transport. Warning strikes last month at airports led to the cancellation of over 330 flights.