Calls for Higher Wages

Germany's shops and Christmas markets are filling with shoppers and the pre-Christmas buying boom is accompanied by new, liberalized shopping hours in many parts of country, which allow stores to stay open later and even on Sundays in hope of convincing more people to open their wallets.

This is one sign of the economic boom in Germany, which has recently experienced growth rates topping the 2 percent previously expected this year. As a result, many say that benefits from this should now trickle down to workers.

"Decent wage increases would mean that people's purchasing power eventually catches up with economic growth," said Kurt Beck, leader of the Social Democrats, who share power in Germany's grand coalition government with Chancellor Angela Merkel's conservatives. "This hasn't been possible in recent years but becomes even more important with respect to our efforts to shore up domestic consumption and growth."

As a result, senior Social Democratic Party figures have come out in support of trade union demands for higher wages, arguing that years of wage restraint should come to an end.

Employers reluctant to increase wages

Meanwhile, wage negotiations in some pivotal sectors of the economy are due to start soon and bargaining is expected to be fierce. For example, German engineering and metalworkers represented by IG Metall are demanding an increase of up to 7 percent in wage talks due to begin next year.

In the past, workers had accepted job security assurances instead of wage hikes. Many German companies have used such agreements as breathing space to restructure operations and cut costs and are now profitable again especially because of global economic expansion.

Because of that profitability, a wage increase of between 5 percent and 7 percent would be appropriate, IG Metall's northern chapter head, Jutta Blankau, told Welt am Sonntag weekly newspaper.

"It's true that unions have been exercising a certain amount of restraint,'' she said. "With stiff competition and industry costs remaining high, unions had no choice. But that is changing."

Still, the European Central Bank has already warned of inflationary pressure should wages go up too steeply. And German employers are reluctant too, fearing that wage hikes will lead to a decreased competitiveness of their goods and services.

Martin Kannegiesser, chief negotiator for the employers in the metalworking industry, said he doesn't favor the idea of wage hikes but isn't willing to rule them out.

"In companies where business is booming, wages could indeed rise," he said. "But we should also be concerned about those companies where business remains sluggish and which cannot cope with huge wage increases."

Taxes endanger jobs

Members of Merkel's Christian Democratic Union supported diversified wage demands. But Dirk Niebel, general secretary of Germany's free-market liberal opposition party, the Free Democrats, said the government should stop hitting people with higher taxes.

"This means first of all doing away with the planned increase in value-added-tax that will endanger thousands of jobs next year," he said. "Secondly, contributions to the social systems must come down, and people must be given back most of what the government has taken away from them in the past."

Economists also attribute the current spending spree to fear of the 3 percent increase in value-added-tax to be introduced Jan. 1. The increase is expected to dampen consumption from 0.8 percent this year to 0.3 percent in 2007.

While economists admitted that wages in Germany dropped substantially over the past five years in real terms, higher wages and price hikes as a result of higher VAT are a recipe for inflation and rising interest rates, they say.

The European Central Bank has already said it will be closely watching developments in Germany because exorbitant increases in German wages, ECB analysts warn, could also produce higher inflation and rising interest rates in the 25-member EU.