No More Coddling Big Labor In Germany

Kohl and the corporations may finally tame the unions

Rich, powerful, and popular, Germany's labor unions have long inspired a healthy respect and even fear in the country's politicians. Yet Chancellor Helmut Kohl is now on a collision course with this dangerous adversary. Angered by Kohl's plan to slash welfare benefits, union leaders plan to boycott a scheduled July 3 meeting with the Chancellor. And they're threatening labor unrest unless the government alters its reform plans. "The administration is heading in the wrong direction and has to be turned around," says Ursula Engelen-Kefer, vice-chairman of the German Confederation of Trade Unions.

So far, however, the burly Chancellor is not caving in, a clear sign that Kohl senses weakness in the union position. And if Kohl holds firm against organized labor, corporations are certain to toughen their own positions with union negotiators. Says Albert Caspers, chairman of Ford of Europe: "We just cannot afford to finance [social] expenditures with more taxes and higher debt." As that attitude spreads, the balance of power will shift in favor of those intent on changing the way the country works.

A number of factors are strengthening the position of Kohl and Corporate Germany. With the next national elections two years away, the Chancellor and his fellow Christian Democrats have an unprecedented opportunity to make unpopular changes without committing political suicide. In preparing a $33 billion cost-cutting plan, the emboldened Kohl has frozen union leaders out of their traditional roll in Germany's consensus policymaking. Now his two most controversial measures, which allow companies to reduce sick pay and relax job protection rules, will be introduced in the Bundestag before the end of June. Both measures are expected to pass. Kohl's party is in no mood to compromise. "Let them strike," says a defiant Friedrich Bohl, Kohl's point man on the budget-cutting plan.

SOAKING UP THE SUN. Business leaders, politicians, and many voters are finally starting to realize that German workers are pricing themselves out of the market in the world economy. At $29.75 an hour for the average industrial worker, German labor is the most expensive in the world, figures the Institut der Deutschen Wirtschaft, the economic research firm in Cologne (table). A main culprit: rich benefits, such as six weeks of paid vacation per year and periodic, subsidized spa visits. As a result, companies have fled Germany in droves, pushing unemployment to a near-record 10%.

In this crisis, labor's longtime partner, the opposition Social Democratic Party (SPD), has proposed no plausible alternatives to Kohl's plan and is instead simply backing the status quo. The unions also did not advance their cause much on June 15, when 350,000 workers descended on Bonn to persuade the Chancellor to back off from his reforms. Instead of protesting angrily, they drank beer, soaked up the sun, and danced to live music. It seemed more a summerfest than a serious protest, and Kohl could easily shrug it off: "We can't get confused about our direction," he said.

Unions are also on the defensive at the bargaining table, especially with high unemployment eliminating all upward pressure on wages. Kohl's threats to freeze wages for public-sector workers prompted a series of warning strikes by rail workers and garbage collectors in the spring. Talks deadlocked. But in the end, mediators proposed a new 20-month contract that amounts to an annual pay hike of just 0.7%, or half the rate of inflation, figures Thomas Mayer, a senior economist at Goldman, Sachs & Co. in Frankfurt. Union acceptance is likely. "The fat times are over," blared the front page of Bild-Zeitung, Germany's largest-circulation daily.

HORSE TRADING. Kohl still faces some obstacles. His measures on sick pay and job rules need only the approval of parliament's lower house, where Christian Democrats dominate. Yet the Chancellor's plans to lower lofty corporate and individual income taxes, as well as reduce a levy on investments, must pass both houses. And in the upper house, which represents Germany's 16 federal states, the opposition Social Democrats run the show. SPD leaders say the proposed tax cuts would benefit only corporations and the rich, while ordinary workers would bear the brunt of the spending cuts. To get his way, Kohl and his party are threatening to block renewal of a wealth tax that brings German states $5.5 billion annually. He figures they'll horse-trade for tax cuts to save their budgets.

Kohl's reforms will give corporations more weapons to use in their battle with unions. Many companies will try to reduce sick pay substantially, once the federal law allows them. The unions will fight back, of course. This fall, the nation's most powerful union, IG Metall, opens negotiations on a new contract with Germany's industrial companies. IG Metall Chairman Klaus Zwickel has already pledged to strike if companies try to reduce sick-leave pay. Adding to the tension is the determination of Germany's industrial leaders to avoid the rich wage hikes IG Metall won last time around. Says Ford's Caspers, "These will be very, very tough negotiations."

Germany's unions are still the most powerful in the West. But Kohl's recent moves are changing not only the laws that govern the workplace but also the psychology that has long given unions an edge. Sensing the change in mood, corporations will be pushing harder than ever at the bargaining table.