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Germany: Wage Deal Worries Automobile Industry

Munich, 19 February (RFE/RL) - German labor union leaders have hailed this week's wage agreement for the automobile industry as an important victory which could set an example for the rest of Europe. But employers are warning it could cost jobs and harm the faltering German economy.

The agreement, which includes a one-time bonus, effectively raises wages by 4.2 percent for the next 14 months. That is four times the rate of inflation in Germany. Labor leaders say they will be seeking another increase when the present agreement expires.

Officially this agreement covers only the 840,000 workers in the metal and electrical industries in the province of Baden-Wurttemburg, where most of the automobile industry is located. But their union, the I.G. Metall, insists it must be extended to cover their members in the rest of Germany, even in the five provinces of the former communist eastern Germany where many enterprises are already struggling to meet costs.

I.G. Metall has about 3.5 million members. Organizations representing employers estimate that it will cost around 2.7 billion German marks if the increase is extended to all of them. (About $1.8 billion.)

I.G. Metall has described the agreement as a "happy outcome" after several years in which the unions agreed to low wage increases to help the national economy. Germany's 14 other labor unions have also welcomed it. They are expected to use the agreement as a model for their own wage demands in negotiations over the next few months.

Some of Germany's labor leaders hope it will have repercussions beyond their own borders. A spokesman for I.G. Metall said today the agreement "should set an example" for labor unions across Europe as they seek wage increases.

One reason for the wider interest is that the I.G. Metall has said that its wage demands are partly linked to the coming introduction of the all-European currency, the Euro. Several German labor leaders have said they want to push the wages higher before the Euro brings them down.

Industrial competition is expected to grow after the Euro becomes the common currency across most of Europe in the year 2002. Some labor unions fear employers will try to cut high German wages to meet competition from low-wage Mediterranean countries. They want high wages now so the cuts will not force drastic changes in living standards.

But while labor is content for the time being, employers organisations are concerned that the agreement represents a setback for the economic restructuring which most experts believe is essential if Germany is to remain an economic power. Particularly export-oriented businesses are concerned about the extra wage costs, which they say they cannot recover by increasing prices because that could cost them markets.

An industrial consultant, Herman Schmidt, says the agreement ends a two-year period of consensus on keeping wage demands low. Schmidt and many other experts believe the low wage increases helped moderate Germany's steep labor costs, which make its goods expensive and hard to sell around the world.

Some experts claim that close to 100,000 jobs were created in this period. That is an important factor in a country where unemployment in January reached 11.5 percent.

Employers have warned that the new agreement could lead enterprises to dismiss workers, particularly in eastern Germany. The employers say they are particularly distressed about the one-time bonus payment included in the settlement. During the negotiations the employers had attempted to link this to profits, exempting struggling companies. But the union negotiators rejected such a two-tier contract.

Werner Stumpfe, president of the employers organisation in the metal industry, says the agreement could lead to some dismissals. "We certainly expect some job losses, particularly in eastern Germany," he says.

Stumpfe argues that it was necessary to lighten the burden in eastern Germany, not to increase it. The president of the German employers federation, Dieter Hundt, also says the new agreement could have a negative effect, particularly in eastern Germany.

Unemployment in the five former communist provinces in eastern Germany is now an average 18.9 percent. In western Germany it is an average 9.7 percent.

The next round in the struggle between Labor and industry takes place February 25 when labor leaders, industrialists and government representatives meet to discuss measures to fight unemployment.

Chancellor Gerhard Schroeder has organised a series of these roundtables but some employers are already saying thay have largely lost their desire to participate. They argue that the wage demands of the labor unions will increase unemployment, not diminish it.