International

German strike called off after pact

By Batuk Gathani

BRUSSELS MAY 16 . The 10-day strike against Germany's major automobile and metal manufacturers was called off last night by the country's largest industrial trade union, the 27-lakh-strong IG Metall.

A settlement was agreed upon for a four per cent wage increase, leading the union head, Klaus Zwickel, to dub the 22-month pay package a "masterpiece" of wage bargaining. Such optimism is not shared by German banks and employers, however, who widely predict a series of lay-offs under recessionary trade conditions.

Some analysts today warn that "stagflation" — depressed economic growth coupled with stubbornly high inflation — could again loom on the European horizon. The latest data reveals that the euro-zone's largest economies are barely expanding and that prices are rising at an annual rate well above the European Central Bank's (ECB) self-imposed ceiling of two per cent.

With the end of the strike, observers are wondering how damaging the settlement will be to German firms, which are already struggling with low margins and decreased consumer demand. Germany's traditional competitive edge is seen as quickly eroding, with firms paying the world's highest wages for skilled workers.

The last major German strike was triggered seven years ago and also led to a four per cent wage increase — resulting in firms cutting some two lakh jobs. Germany's unemployment has now crossed the "psychologically sensitive" four million mark, which leads some to argue that a further rise in unemployment and any economic setbacks from rising labour costs could drastically weaken the German Chancellor, Gerhard Schroeder's re-election prospects on September 22. Recent polls suggest that Mr. Schroeder's centre-left Government may lose out to the centre-right coalition led by the Christian Democrats.

The spill-over effect on Germany's major trading partners cannot be underestimated, with anti-immigration agendas in E.U. countries now very much in vogue.

The ECB yesterday hinted that it would raise interest rates from the current 3.5 per cent if current euro-zone inflationary levels persist — a message that is becoming a nightmare for vote-hungry euro-zone politicians.

Some argue that if European manufacturers are denied the special advantage of "cheap" money, they may not be able to compete.

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