Thousands more German jobs go: Mercedes axe poised over 22,400 as Telekom prepares to slash 30,000

TWO LARGE German companies announced heavy job cuts yesterday in a desperate scramble to force costs down in the face of recession.

Mercedes-Benz will now cut 22,400 jobs in Germany during this year and next, 6,000 more than previously stated. The cuts form part of radical reform of the company's once-famed system of generous fringe benefits and voluntary social payments. Mercedes said it expected to save DM1bn ( pounds 394m) by these measures.

German Telekom said it would axe 30,000 jobs by the end of the decade as part of its preparations for tough competition when Europe's telecommunications markets are liberalised.

The state-owned agency, which the German government hopes to privatise within a few years, reported a small net loss for the second year running, mainly due to heavy infrastructure investments in eastern Germany.

Mercedes, which employed 170,000 people in Germany at the end of last year, said it would try to make most of the cuts through early retirement and voluntary departures, but warned that some redundancies in administration and the truck division were probably unavoidable.

Meanwhile, the IFO economics institute said the climate in western Germany's manufacturing base remained negative, with orders continuing to fall despite reduced production.

The findings appeared to support analysts who believe that the German economy is likely to stagnate for the foreseeable future.

The gloomy outlook will dominate tomorrow's Bundesbank meeting, the first after the summer recess. According to a poll by Finanzen magazine, the 12 chief economists from Germany's biggest banks are unanimous in expecting a cut in the discount rate, probably by half a point from the current 6.75 per cent.

The move is desperately awaited by Germany's European partners, notably France, keen to test the new freedom of manoeuvre in the wide-band European currency system by pushing their own rates down.

Several analysts regard a German easing as unavoidable now that short-term money market rates are bumping up against the discount rate, which the Bundesbank wants to keep as, in effect, the floor for short-term lending.

The discount rate stands at 6.75 per cent, while call money was yesterday around 6.85 per cent and one-month money around 6.75 per cent.