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German wage demands hit ECB bid to curb inflation

The European Central Bank’s struggle to rein in inflation received a setback yesterday when a leading German trade unionist told employers to prepare for a “mega wage” year in Europe’s largest economy.

This comes against the backdrop of news that German employment growth more than doubled in 2007 and growing rhetoric from European Central Bank policymakers that the bank will act decisively against knock-on inflation effects from higher wage demands. A spike in eurozone inflation to a six-and-a-half-year high at 3.1% in November, has already dampened hopes that the ECB will move to lower rates soon. Economists expect preliminary figures for December, due this Friday, to remain at that level. The fear is that the round of wage talks that it is set to start over the coming weeks will compound the inflationary effects of sky-high oil and other commodity prices. Oil broke through the $100-a-barrel level yesterday for the first time, having soared nearly 58% in 2007.

IG Metall, Germany’s largest labor union, expects substantial pay rises for metal industry workers at companies including carmaker Daimler, this year. “It’s very obvious that 2008 will be a mega wage year,” Berthold Huber, IG Metall chairman, was quoted as saying yesterday. “A lot is at stake for workers,” he said, predicting “arduous” pay talks. Wage contracts for about 3.2 million employees covered by IG Metall expire on October 31. IG Metall has already said it wants an 8% pay increase for about 108,000 steel workers. Ver.di, Germany’s second-largest union, with 2.3 million members, has said it wants 8% more pay for workers in the public-service sector including bus drivers and hospital nurses. The IG BCE union is demanding as much as 7% more pay for chemical staff at companies such as BASF and Bayer. The union demands come as employment levels in Germany reach their highest levels since reunification in 1990.

Data released yesterday showed employment increased 1.7% last year - almost three times the pace of growth seen in 2006. “The good economic situation contributed particularly to the positive development in employment in the year 2007,” the German labor office said. “Mild weather at the start of the year and measures introduced at the end of 2006 to encourage employers to keep on staff, who might typically be let go, had also helped boost numbers.” Germany’s seasonally-adjusted unemployment total has fallen steadily from apeak just above 5 million in March 2005 to 3.6 million in November. (