Pay strike a blow for Schroeder

GERMANY'S powerful IG Metall union leadership is expected to vote for widespread strikes today after negotiations over a 6.5% pay claim broke down on Friday. The walkouts, scheduled for May, will be the biggest Germany has seen in nearly a decade and threaten the fragile economic recovery currently taking hold.

'I don't see any chance of further negotiation,' said Klaus Zwickel, boss of IG Metall which has close to three million members across all sectors of German industry.

The news is especially bad for Chancellor Gerhard Schroeder who is banking on an economic upswing to propel him back into office at the General Election in September.

The Government is working frantically behind the scenes to try to avoid widespread strikes but the union, a traditional supporter of Schroeder's Social Democrats, has lost faith in policies it says are aimed at 'trimming budgets instead of social equality'.

Leaders of the union met with bosses in the key state of Baden-Wurttemberg last week. Hopes were high that a deal could be reached. Home to Porsche, Mercedes and a host of other big-name companies, the south-western state has traditionally led the way in negotiations. A settlement would have become the blueprint for a national model.

Managements have offered 3.3% - 'already way above our pain threshold' according to one negotiator - but the union says 4% is a minimum. So far, neither side has blinked and IG Metall has upped the stakes each week for the past month with more and more 'warning' walkouts. Such action culminated with more than 100,000 people downing tools last week.

Major economic institutes warn of thousands of job losses if wages go higher but this is not budging Zwickel and his leadership. And Germany senses that more than just money is at stake in the latest showdown.

The collapse in recent weeks of high-profile corporate crown jewels such as the Holzmann building firm, plane maker Dornier and the Kirch media empire show an erosion of the very 'social contract' upon which the German economic miracle of old was built.

Just as regional banks are now seen as unreliable tools on which to build a corporate structure, so this one-size-fits-all negotiating pattern - done every two years and encompassing thousands of companies - is now seen as anachronistic in the modern age. 'It is grotesque that, in the worst economic situation in years, IG Metall is making the highest wage claim in years,' said Otmar Zwiebelhofer of the German Employers Federation. Some 17% of the industries in which the union is represented is already making losses, according to the Gesamtmetall industry employers' group.

The showdown is the strongest test yet of the old collective-bargaining mindset versus new, euro-driven wage competition with management perhaps, finally, being able to break the enormous power of IG Metall. The union's lack of flexibility is blamed by many for hobbling the economy.

Lockouts, solidarity between managements and the possible use of non-unionised labour are issues now being debated at boardrooms across the country. Employers believe it is a fight that Germany - in recession with spiralling jobless numbers - cannot afford to lose.