Time for German wages to really rise, minister says

Sun Feb 12, 2012 10:02am EST

* Von der Leyen wants pay rises of more than 2 pct

* Coalition allies dismiss minister's intervention

* Sluggish German wage growth factor in euro zone crisis?

By Erik Kirschbaum

BERLIN, Feb 12 (Reuters) - German wages should be raised by more than 2 percent this year, Labour Minister Ursula von der Leyen said in an unusual appeal to employers on Sunday that was quickly criticised by leaders of her own ruling coalition.

Von der Leyen, sometimes mentioned as a candidate to succeed Chancellor Angela Merkel, told Bild am Sonntag newspaper that workers in Germany deserved a pay raise above the inflation rate, currently 2.1 percent, after years of settling for less.

Wages for some 9 million workers are up for negotiation in the weeks ahead and Germany's two biggest unions are seeking 6.5 percent pay rises: the powerful IG Metall for the 3.6 million workers in the engineering sector and Verdi for 2 million public sector workers. Employers dismiss the demands as exaggerated.

Modest wage increases in the last decade have boosted Germany's competitiveness but they are also sometimes blamed by economists for contributing to imbalances in Europe that have exacerbated the euro zone crisis.

Between 2000 and 2007, nominal compensation in Germany grew by a mere 1 percent per year on average compared with 2.7 percent in the combined euro zone. German wages rose more strongly in 2011 but by a still modest 1.5 percent average.

"In recent years we've worked quite industriously in Germany while at the same time exercising restraint when it came to pay deals so that we were able to get through the financial crisis in good shape," said von der Leyen, a conservative party leader.

"Now that that's succeeded and German corporate profits are strong, it's time for workers to get a share of that and get a palpable pay rise," she added.

When asked how palpable, she said: "The pay rise should be more than the inflation rate so it won't be eaten right up."

SHARE OF PROSPERITY?

It is rare for German political leaders to intervene in pay negotiations, which they stay out of by saying they are for employers and workers to decide on their own. It was even more extraordinary for Von der Leyen to identify a concrete target.

She was quickly criticised by party ally Michael Fuchs, a member of parliament in Merkel's Christian Democrats (CDU) and ardent defender of industry. A leader of the Free Democrats (FDP) coalition partners also dismissed von der Leyen's ideas.

"One has to anticipate what's going to happen in the future when coming up with wage policies and thus it's not clear whether the current economic conditions will continue," Fuchs told the Sonntag Aktuell newspaper on Sunday.

Fuchs said political leaders should stay out of wage talks, a view backed by Heinrich Kolb, deputy FDP leader in parliament. Kolb said workers in Germany were already profiting from the economic upturn "because many more people now have a job."

Von der Leyen said the economic outlook in Germany remained bright and said employers have an obligation to workers.

"The hard facts in Germany point to strong conditions on the labour market and full order books," she said. "The basic promise of our social market economy has always been: if we all work hard together, everyone will share in the prosperity."

Subdued pay rises in the last six years have strengthened Germany's competitive position. After unemployment levels peaked in 2005, reforms boosted the labour market and employment levels are now at record levels.

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