View from City Road: Rewards of German consensus approach

We wanted job security and we were ready to give up money for that, said Klaus Zwickel, head of the engineering union IG Metall, after the weekend pay deal that averted a crippling wave of strike action in German industry.

Mr Zwickel's attitude demonstrates why wage negotiations in Germany have long been among the most flexible in Europe. Studies by Ray Barrell and his colleagues at the National Institute of Economic and Social Research have found that German workers are more willing to accept below- inflation pay increases to protect employment than their counterparts in almost any other leading industrial country.

The engineering industry sets the tone for the national pay round. The negotiators are traditionally conscious that an excessive settlement would prove inflationary, prompting the Bundesbank to raise interest rates. This in turn would strengthen the mark, damage the international competitiveness of German industry and threaten jobs. They rarely risk it.

Last weekend's success therefore demonstrates that despite the alarming behaviour of the German money supply, the players in the labour market do not doubt the Bundesbank's commitment to keeping a lid on inflation. This is all the more remarkable given the inflationary consequences of reunification.

This flexibility in wage setting is built on a consensual approach to bargaining, in which unions and employers look to the national consequences of their actions. But it would be nave to believe that Britain could replicate it, having travelled so far down the road towards decentralised bargaining and away from the corporatist approach.