EUROPE : German Battle Over Wages a No-Win Economic Nightmare

BERLIN — A volatile confrontation is brewing in a key branch of eastern German industry that threatens to weaken both the region’s economy and the fragile bonds of German unity.

The clash pits disillusioned and angry metalworkers in the former Communist east against their employers, who earlier this month declared they could not hold to their promise to bring wages up to western German levels by April, 1995.

That promise was etched into a labor contract two years ago when most believed that the region’s economic troubles would soon be history.

But dogged by the collapse of traditional eastern markets, a recession in the west and poor productivity levels, eastern metalworking companies are averaging losses equal to between 20% and 30% of their sales, according to employers. A 26% pay increase planned for April 1 would be the death knell for many of the region’s struggling factories, they argue.

“It’s simply no longer economically feasible,” said Hans-Joachim Gottshol, head of Gesamtmetall, the German metalworking industry’s employer association.

Enraged officials at Europe’s largest industrial union, IG Metall, claim that unilaterally breaking a contract is illegal and unprecedented and makes a mockery of the collective bargaining process. They say the employers are engaging in cheap blackmail in a region where unemployment is high and workers basically defenseless.

“We’ll fight this using every legal and trade union measure we can muster,” vowed Michael Boehm, a senior regional official of IG Metall.

Protests have already been held in and around Berlin, and national union officials have said that if strikes come, they won’t be restricted to the east.

In part, the dispute is important because the metalworking branch is one of the largest employers in German industry.

But as union and management get set to square off, it is increasingly clear that the issues in the dispute and their ramifications go far beyond this bellwether industry.

For those trying to breathe new economic life into the depressed eastern region, the clash is a no-win nightmare: If the unions manage to win the 26% pay increase, more bankruptcies will almost certainly follow in a part of the country where roughly 30% are already effectively jobless.

The number employed in the eastern German metalworking industry has shrunk from 1.5 million to about 400,000 in less than three years.

“It would make a bad situation worse,” said Heiner Flassbeck, a senior economist at the German Economic Institute here. “It would bring additional unemployment.”

With German industrial wages already the world’s highest, the increases would also have a stifling effect on foreign investment in the region.

But the far smaller increase of 9% so far offered by employers would leave eastern wages at around half western levels--a disparity likely to drive badly needed skilled labor westward and diminish the region’s chance for longer-term recovery.

In addition, the dispute has an important social dimension because the employers’ decision to suspend the contract is viewed by many easterners as merely the latest in a string of broken promises and deceptions by the country’s western elite that had promised that unity would bring prosperity.

With living costs in the east rapidly rising to western levels, depressed eastern wages are a key factor in the depressed public mood--a source of bitterness that few understand and most see as a confirmation of their status as second-class Germans.

Some believe that a 9% wage increase agreed on earlier this week in the eastern chemical industry provides a hopeful sign and a possible example for the metalworkers’ dispute.

But the unions don’t agree.

“What happens in the chemical industry provides no signals for us,” said IG Metall official Frank Teichmueller.