UPDATE 1-German public sector unions win big pay hikes for 2014, 2015

Tue Apr 1, 2014 2:53pm EDT

(Updates with quotes, details, background)

By Thorsten Severin

POTSDAM, Germany, April 1 (Reuters) - The German government and trade unions have agreed to a 3 percent wage increase for some 2.1 million public sector workers this year and a 2.4 percent pay rise next year, Verdi union leader Frank Bsirske and the government said on Tuesday.

The agreement - one of the biggest pay hikes for public sector workers in years - takes effect from March 1 and also includes a pay raise of at least 90 euros per month this year for public sector workers at the lower end of the wage scale.

Labour unions in Germany have been getting above-average pay hikes in the last year after a decade of wage restraint and deals that failed to even keep pace with the country's inflation rate, currently 1.0 percent. The moderate deals had improved the country's competitiveness and helped reduce unemployment.

But the smaller pay rises had also put strains on the euro zone and pressure on Germany to encourage higher deals to boost consumption. Boosting wages and domestic demand in Germany are widely seen as ways to help tackle current account imbalances among euro zone countries.

German leaders had long stayed out of pay talks, but in the last year they have signalled their support for higher pay hikes in Europe's largest economy, where workers are enjoying the benefits of economic strength and a healthy labour market.

"The result is among the best we've seen so far in 2014," said Verdi leader Bsirske. "It's in the same range as the chemical workers will be getting. It feels good."

Germany's 550,000 chemical industry workers in February agreed a 3.7 percent pay hike for the next 14 months.

German Interior Minister Thomas de Maiziere, who led the government side, praised the agreement even though it will cost taxpayers and financially stretched communities an extra 2.55 billion euros in 2014 and a further 2 billion euros in 2015.

"It's a good and fair result," said de Maiziere after the unusually quick agreement. "The result reflects both the interests of taxpayers but also takes into account the justifiable wishes of public sector workers for a pay raise."

The unions had backed their demand with brief token strikes involving some 200,000 workers at German airports, kindergartens, town halls, and public swimming pools last week. Trash collectors also took part in the walkouts.

Verdi and the DBB German civil servants trade unions had called for pay rises of 3.5 percent for federal and municipal workers and an extra 100 euros per month. Employers said such demands were excessive. (Writing by Erik Kirschbaum and Michelle Martin; Editing by Hugh Lawson)