Weiss warns of deep recession in Germany

GERMANY runs the risk of 'plunging into a lengthy recession accompanied by sharply rising unemployment', Heinrich Weiss warned yesterday following his stormy resignation on Monday as head of the Federation of German Industry (BDI).

The only way to avoid such calamity, Mr Weiss said, speaking far more openly than he had ever dared as BDI president, was via a radical reduction in pay settlements and drastic cuts in public spending in western Germany.

At the same time, senior industrialists and government party members called for Monday's settlement at Lufthansa, the troubled state airline, to exert a 'pioneer effect' on wages and working hours throughout the economy.

Aware of the dire straits Lufthansa is in - the airline expects an operating loss of DM1.2bn (pounds 441m) this year - the unions agreed to postpone a wage increase for a year; longer, more flexible working hours, and the shedding of 8,000 jobs.

The ruling Christian Democratic Party's economics spokesman, Matthias Wissmann, said yesterday that the accord marked the way forward for all companies in difficulty. The notion of uniform wage settlements covering entire sectors can no longer apply, he suggested. Hans-Joachim Gottschol, head of the engineering employers' federation, Gesamtmetall, said the Lufthansa agreement indicated a fundamental willingness by unions to adopt a new approach.

Meanwhile, Mr Weiss' resignation continued to send shock waves through the economy yesterday as it was interpreted as yet another sign of industry's dissastisfaction with the Bonn government. Mr Weiss made no secret of what he termed the 'insufficient contacts between senior managers and the chancellery'.

He said a drastic change of heart by government was needed if the negative effects of its failure to cut public spending were not to draw the economy down. The risk of a recession can be seen, he said, in sectors such as machine tools and chemicals, which are sliding rapidly downwards. Real output in western Germany fell by 1.5 per cent in the second quarter of this year and is expected to decline a further 0.5 per cent in the three months ending 30 September.

Mr Weiss said the western German states must make deep cuts in public investment in order to release funds for the east, while the unions must accept that living standards in western Germany cannot be raised significantly, allowing growth to be pushed instead into the east.