German unions agree to pay settlement

THE GERMAN government and public sector unions last night concluded two days of talks with agreement on a wage rise for 1993 of 3.0 per cent. The agreed rise is well below the current 4.4 per cent inflation rate, let alone the

5 per cent that the unions had originally demanded. The pay rise is backdated to January.

The settlement is much closer to the employers' initial offer of 2.25 per cent than to the unions' earlier demand. The unions had seemed ready during negotiations to give up their demands for a 'social component' in the wage settlement, including special payments for the worst-off.

Monika Wulf-Mathies, head of the OTV, the main public-sector union, indicated that the union had given up its earlier demands for special payments to be included for the lower-paid. Instead, efforts were directed towards the agreement on the percentage rise. One of the union negotiators emphasised there had to be 'a three before the percentage point', and that this was the 'pain barrier' below which the unions would refuse to go.

The possibility of imminent settlement of the wage round at a restrained level may have been one contributing factor in yesterday's dramatic and unexpected announcement by the Bundesbank of a cut in interest rates. Bonn has been keen to see a cut in interest rates, but the Bundesbank, equally, has wanted to be seen to be its own master. It had long been expected that a cut in interest rates would only be forthcoming if a modest public-sector wage settlement was agreed.

But the cut in interest rates will do little to reduce the other political pressures on the Bonn government, which remain as strong as ever. The government's proposed 'solidarity pact' - a package of austerity measures, intended to divert money to help recovery in the east - has received a thumbs- down all round and still shows no sign of being agreed.

Earlier in the day, the German Interior Minister, Rudolf Seiters, who had led the wage negotiations for the government side, was confident that 'this difficult problem' would be solved in the Stuttgart round of talks which had been expected to break up without a conclusion.

A meeting on Wednesday between Chancellor Helmut Kohl and Germany's 16 regional prime ministers led to not even the hint of an agreement. To his dismay, Mr Kohl has found that the regions, or Lander, have partly banded together across party lines because of their dissatisfaction at the way the solidarity pact has been formulated.

As a result, the government has been forced to make a series of small but telling retreats. Only last week it was being officially declared that 18 February would be the final crunch date for agreement on the solidarity pact, for which Mr Kohl wants the support not only of the government coalition parties but also of the opposition Social Democrats and the unions. Already, however, the official date for agreement has slipped to 12 March.

Even amidst Mr Kohl's continuing difficulties there is sometimes a silver lining. Volker Ruhe, the Defence Minister, this week announced a series of defence cuts, including a freeze on all new defence contracts. Cuts of 863m marks ( pounds 376m) have to be found this year and DM700m in the years 1994 to 1996. But though the news may have been unwelcome in other ways, it at least provided the government with an excuse to abandon the purchase of a sophisticated reconnaissance system, which had become an acute embarrassment.

The DM3bn deal to buy the Lapas high-altitude reconnaissance system had come increasingly under fire in recent weeks, with widespread allegations in the German media of bribery and corruption involving senior politicians and defence officials.

The government's own credibility came into the spotlight when it was reported that the Prime Minister of Bavaria, Max Streibl (of the CSU, one of the government coalition parties), had been offered free holidays by Grob, the Bavarian aircraft manufacturer which was working together with the US manufacturers of the Lapas system. The state prosecutor is reported to have begun investigations against a number of Defence Ministry officials in the Lapas affair.

The cancellation of the Lapas deal thus removes some pressure on that front, though the opposition Social Democrats (SPD) are still calling for an investigation into how it came to be signed.