German Union Mobilizes Over Pay to Avert `One-Leg' Recovery

German workers are mobilizing to fight for a bigger share of the export-driven recovery, arguing that wage raises are necessary to spur consumer spending in Europe’s biggest economy, an IG Metall union leader said.

So-called warning strikes by steelworkers at ThyssenKrupp AG and Salzgitter AG that began yesterday will “definitely” continue unless employers meet demands for 6 percent more pay, Helga Schwitzer, an IG Metall board member responsible for wage negotiations said in a Sept. 21 interview in Frankfurt.

While exports give Germany a “very strong leg to stand on,” increases are justified because the recovery is at risk without consumer spending, Schwitzer said. “If you’re only standing on one leg, you start to limp,” she said. “The second leg, domestic spending, has to be strengthened.”

Pressure is building for pay raises in Germany after years of belt-tightening. The U.S. Treasury, the European Commission, French Finance Minister Christine Lagarde and billionaire investor George Soros have all urged Chancellor Angela Merkel’s government to bolster consumption and rely less on exports to aid recovery in Europe and globally.

“We could use a level of redistribution in this wage round, but we shouldn’t overdo it,” Andreas Scheuerle, an economist at Dekabank in Frankfurt, said by phone. “Pay increases would mean a win for the domestic economy, but it would come at the cost of exports.”

Order Books Full

The clamor for wage raises is growing as full order books and dwindling inventories at companies such as carmaker Volkswagen AG helped fuel second quarter growth that was the fastest since records for a reunified Germany began in 1991.

The yield on the 10-year German bund, Europe’s benchmark government debt security, reached a record low of 2.087 percent on Aug. 31. The yield dropped 6 basis points to 2.28 percent as of 11:34 a.m. in Berlin, a two-week low, after the government said it will sell less debt than previously planned.

The DAX index has meanwhile risen more than the European average this year, while the Munich-based Ifo institute’s survey of business confidence reached its highest level since June 2007 in July. The index for August is released tomorrow.

“At the moment there’s no real problem with inflation,” Scheuerle said. “But heading toward 2012 we could see an above- average inflation development in Germany.”

Down Tools

About 2,000 steelworkers downed tools in factories in Dortmund and Salzgitter yesterday after employers declined to respond to the union’s call for the pay increase and an allied demand for more full-time positions.

The workers are due to protest through the end of the week. Although the 85,000 steelworkers concerned are a small portion of IG Metall’s 3.5 million workers, the resolution of this wage round traditionally influences other negotiations with workers.

“Steelworkers are very angry,” Schwitzer said. She cited Dusseldorf-based ThyssenKrupp, Germany’s largest steelmaker, which last month raised its fiscal earnings outlook. “Steel is booming, the industry is booming, despite commodity prices and other factors -- so the workers want their fair share,” Schwitzer said.

Siemens AG, Europe’s biggest engineering company, said yesterday it had reached an “open-ended” agreement with IG Metall that will secure the jobs of its 128,000 German workers indefinitely, avoiding compulsory layoffs “wherever possible.”

Job Security

IG Metall, Germany’s biggest union, struck a separate deal in February for workers in the automotive and other industries after going into the talks putting job security above pay, omitting for the first time to set a concrete wage claim.

The union and the Gesamtmetall employers’ association agreed on a one-time payment of 320 euros for this year and a 2.7 percent pay raise for 2011. At the previous wage round in November 2008, the manufacturing union won a pay increase of 4.2 percent, after pressing for an 8 percent raise.

While Merkel and her labor minister, Ursula von der Leyen, have both signaled their openness to higher pay for workers, Martin Kannegiesser, Gesamtmetall head, indicated the demands won’t be met. He told Frankfurter Allgemeine Zeitung on Sept. 16 that wages climbed even during the crisis and employers don’t need to offer “further assistance.”

The German economy will grow 3.4 percent this year and 2.2 percent in 2011, the RWI institute, which advises Merkel’s government, said on Sept. 15. Even so, Merkel’s focus on reining in the budget deficit to steer the country out of the European debt crisis may stop consumers from loosening their wallets.

The government should use its trade surplus, the European Union’s biggest, to “foster domestic demand and ease reliance on exports that are contributing a huge trade imbalance on the euro-zone’s periphery,” said Juergen Kroeger, a director in the EU Commission’s Economic and Financial Affairs department.

“Why aren’t we paying people higher wages in this country?” he said Sept. 13 in Berlin. “That might be a start.”

To contact the reporter on this story: Patrick Donahue in Berlin at at pdonahue1@bloomberg.net.

To contact the editor responsible for this story: James Hertling at jhertling@bloomberg.net

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