Via Yahoo Finance

BERLIN (Reuters) – German Interior Minister Horst Seehofer said he expected difficult wage negotiations with labour unions over the 4.8% pay hike they are demanding for 2.3 million public sector workers in federal government and municipalities.

“The federal government is very determined to reach an agreement during negotiations,” Seehofer told reporters on Tuesday ahead of the first round of talks in Potsdam near Berlin.

But the coronavirus crisis is pushing down tax revenues and so limiting fiscal leeway for the public sector, especially at the municipal level, Seehofer added.

The federal government has since March unleashed an array of unprecedented rescue and stimulus measures for which parliament suspended constitutional debt limits and allowed record new borrowing of 217.8 billion euros this year.

Earlier, Economy Minister Peter Altmaier said that state spending was helping fuel recovery from the COVID-19 shock and the economy would shrink less than originally feared this year, but that weak foreign demand could sap the rebound in 2021. [nL8N2FY1YN]

The Verdi and dbb labour unions have argued that public sector workers, especially in the health sector, played a crucial role during the pandemic and that this had to be reflected in the result of the wage negotiations.

The 4.8% pay hike demand applies to a period of 12 months.

In 2018, unions and employers ended marathon talks with a phased agreement to boost the pay of federal and municipal public workers by some 7.5 percent over 2-1/2 years.

Employers and unions are unlikely to reach a deal this week. Both sides already agreed to have two further rounds of wage talks on Sept. 19-20 and October 22-23.

READ ALSO  US airlines lobby White House for another round of federal aid

The European Central Bank is keeping a close eye on German wage negotiations for any sign that wage growth and with it price pressure might be losing steam as this could further complicate its already difficult to achieve inflation targets.

Annual inflation in the 19 countries sharing the euro fell to minus 0.2% last month, the first time it has been negative since May 2016, and remains far from the ECB’s target of just under 2% after seven years of undershooting. [nL8N2FY2F6]

(Reporting by Michael Nienaber, Editing by Catherine Evans)