May 17, 2002 By David Mchugh Ap Business Writer 3 min read

FRANKFURT, Germany (AP) – German business leaders Thursday criticized a wage deal that halted 10 days of strikes by the country’s largest industrial union, saying it would worsen chronic problems with high labor costs and unemployment. But union officials insisted that putting more money in workers’ pockets would spur the economy.

Relief that the country would be spared a protracted labor dispute quickly gave way to debate over the agreement struck by the IG Metall union Wednesday that calls for a 4.0 percent raise for 12 months starting June, and then 3.1 percent for another six months – figures that employer groups called “barely supportable” and “irresponsible.”

The pact covering more than 800,000 workers in the key industrial region of Baden-Wuerttemberg is widely expected to be applied nationwide. The strike was IG Metall’s first in seven years.

In the Berlin area, the only other region targeted by strikes, token walkouts involving 2,800 workers at six companies continued Thursday, but talks expected to end the strike were scheduled for Friday.

IG Metall covers the bulk of factory workers, in businesses such as automaking, consumer and industrial electronics, and machine-building.

The deal allows for some fuzzy math in calculating what it really means, and the different sides trumpeted different numbers. The union pointed to the 4.0 percent increase, but the Association of German Employers figures that the deal – which includes two months with no raise and a $109 one-time payment – averages out to 3.37 percent over its lifetime.

Martin Kannegiesser, head of the Gesamtmetall employers’ group, was downbeat, said the deal would not create jobs and called the increases “barely supportable.”

The Association of German Machine Builders called the deal “irresponsible.” Smaller employers in machine-building – making the machinery used by factories to turn out goods – are facing fierce foreign competition and are considered less able than bigger companies to afford the union’s demands.

“Many companies will now be threatened with losses,” the group said.

Yet U.S.-German automaker DaimlerChrysler, targeted heavily by the walkouts, said the deal was worth it. “We are extraordinarily pleased that the hard-fought compromise poses no further hindrance to our vehicle deliveries,” board member Guenther Fleig said in a statement Thursday.

On the union side, IG Metall deputy chief Juergen Peters said he was “not euphoric” over the two months with no raise but that the four-percent figure would cheer members.

“I think that’s the magic number. Our colleagues were waiting for something beginning with a four, and we got that,” he said.

The deal would help the economy by giving workers more money to spend, said Peters.

“We have a deal that will give an impulse to the economy, no one can deny that,” Peters said on WDR radio.

“In particular, we’ll give the economy a push with the lump-sum payment in the next few days.”

Some economists warned that the wage settlement could prompt the European Central Bank to raise interest rates to ward off inflation sooner than it otherwise would have.

Without mentioning IG Metall publicly, the bank has expressed concern about the risk that wage agreements could fuel inflation. Higher inflation could slow growth.

The wage deal “is too high from an economic point of view,” said Commerzbank economist Michael Schubert, who follows the ECB closely.

“Maybe it will be another reason for the ECB to hesitate no longer to increase interest rates because the ECB has said for the last six months that their forecast is very much dependent on the result of wage negotiations,” he said.