IG Metall plans a tough spring

WASHINGTON, Dec. 11 (UPI) -- The German metalworkers Trade Union, IG Metall, on Monday warned of an explosive mood heading into negotiations in January over wage increase demands of 5 percent to 7 percent for Germany's metal and engineering workers in 2002, the Frankfurter Allgemeine Zeitung reported Tuesday.

Klaus Zwickel, the union's chief, said the proposed increases would help revive consumer demand.

"The empty pockets of working people are a danger to economic activity," Zwickel said.

Zwickel attributed the mood of the industry's 3.6 million workers to dissatisfaction over similar demands that were made two years ago. IG Metall, the second-largest union in the country, had demanded a 5.5 percent increase in 2000, but settled for a 3 percent raise that year and a 2.1 percent increase in 2001. He also cited the suspicion among workers that employers would use the Sept. 11 terrorist attacks as justification for stemming wage increases.

But the German business community, weighted with a sluggish recessionary period, has reacted coldly to the union's demands.

"(The demands) ignore economic realities and send the wrong signal for employment and the job market throughout the German economy," said Martin Kannegiesser, the president of Gesamtmetall, the employers association for the metal and electrical industry.

German Chancellor Gerhard Schroeder showed restraint in reacting to the situation, saying he did not want to interfere in labor disputes. During contract negotiations last weekend, he had called for "overall economic good sense" in dealing with the economic slump.

Zwickel justified the union's demand with the need to boost Germany's paling domestic economy and argued that its recommendation was based on expectations of 2 percent growth in productivity in the sector and average inflation of around 2 percent. He called on the government to bring forward investment programs and for the European Central Bank to "finally initiate clear cuts in interest rates."

But economists warned that the union's demands would prevent the ECB from making further interest-rate cuts in the short term. "I now don't expect the ECB to lower interest rates in the foreseeable future," said Ulrich Kater, chief economist at DGZ-Deka Bank. The bank has already forecast a further rate cut of half a percentage point.

Thomas Mayer at Goldman Sachs does not expect IG Metall's demands to have a direct effect on monetary policy, arguing that inflationary risks are too low at present. He argued that the ECB would need to relax its monetary reins in the medium term because high wage deals would threaten investment and employment, and bring the economy "to its knees."

Horst Siebert, president of the IW global economic research institute in Kiel, warned that the "ECB simply cannot ignore if Europe's largest economy strikes expansive wage deals." It would have to pursue a more cautious monetary policy under such conditions, he said.

IG Metall's final contract demands were scheduled to be passed when the union's board of directors meets Jan. 28. The union's commitment to avoid labor action will expire March 28, Zwickel said. "That means the first warning strikes could start after Easter," he said.

Zwickel said the new wage contracts would go into effect March 1 and be in force for 12 months. The last agreement was valid for 24 months and expires Feb. 28. Zwickel's earlier suggestions for a shorter contract found little support among employers and workers.