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Latest News - April 2015

April 27, 2015
Labour unions flex muscles in German corporate shake-ups
By: Noah Barkin

After years of waning influence, German unions are flexing their muscles again, unleashing waves of strikes, securing generous pay deals and shaping strategy at some of the country's most high profile companies.

Members of engineering union IG Metall played a decisive role in pushing out powerful Volkswagen chairman Ferdinand Piech over the weekend.

The shock departure of Piech, a dominant figure at VW for over two decades, leaves IG Metall's former national leader Berthold Huber as acting chairman of Europe's biggest carmaker.

At Deutsche Bank, opposition from the Verdi union to a wholesale disposal of the lender's retail operations helped convince co-CEOs Anshu Jain and Juergen Fitschen to ditch their preferred shake-up plan and opt for a more modest restructuring.

The VW and Deutsche sagas reached their climax after a week in which striking German train drivers -- pushing for more pay and a shorter working week -- caused severe disruptions to both freight and passenger traffic across the country.

Their walk-outs have coincided with pilot strikes at Germany's flagship airline Lufthansa and a high profile two-year wage battle between Verdi and online retailer Amazon.

The transport strikes prompted Chancellor Angela Merkel's government to draft a new law in December to limit the power of smaller unions.

"We've had periods in the past where wage conflicts escalated, but by German standards what we're seeing now is quite unusual," said Hagen Lesch of the IW economic institute in Cologne.


Lesch is one of the authors of an IW study published last month that highlighted the rising influence of German unions after a prolonged period of crisis.

The report point out that Merkel’s “grand coalition” has introduced a number of labour-friendly reforms, including a nationwide minimum wage. It also notes that after an extended period of declining membership, the number of Germans belonging to unions has stabilized and begun to inch higher.

IG Metall, Germany's biggest union with roughly 2.3 million members, has registered yearly membership increases for the past half-decade.

In February, IG Metall secured what economists estimated to be its biggest pay increase in eight years: a 3.4 percent raise plus a one-off payment of 150 euros per worker which amounts to roughly 3.7 percent on an annualised basis for 2015.

Last year, negotiated wages plus special payments climbed by 3.2 percent on average inGermany, data from the Federal Statistics Office shows.

After a decade of wage stagnation during the "sick man of Europe" days in the early 2000s, labour unions have been emboldened by a resurgent economy and calls from Berlin's European partners for Germans to spend more to help rebalance the euro zone.

Politicians in Berlin have given their tacit approval to bigger deals and even Jens Weidmann, the hawkish president of the Bundesbank, came out publicly in favour of inflation-busting wage increases last year.


Recent events at Volkswagen have more to do with Germany's practice of "Mitbestimmung", or co-determination, than with the wages debate.

Under the system, labour representatives receive half of the seats on the supervisory boards of big companies. When management debates big strategic decisions, unions have a say.

This has led to a degree of consensus and harmony in German labour relations that countries like France can only dream of.

But as the VW and Deutsche Bank cases suggest, it can also prevent a company from taking radical decisions that may ultimately be necessary to preserve competitiveness.

Volkswagen CEO Martin Winterkorn has taken a conciliatory approach with the carmaker's unions. He ditched consulting firm McKinsey as an adviser on cost cuts last year when labour cried foul, and has involved unions in the discussion over how to implement 5 billion euros of planned cuts.

When Piech attacked Winterkorn for profitability shortfalls, struggles in the U.S. market and VW's lack of progress in developing a budget car, labour rallied around the CEO.

On Saturday, VW's powerful works council chief Bernd Osterloh and former IG Metall chief Huber combined with the premier of Lower Saxony, the company's home state and a top shareholder, to boot Piech out.

"Winterkorn has emerged from this power struggle as the man of the unions," said Ferdinand Dudenhoeffer, director of the Center Automotive Research and a former head of market strategy at German carmaker Porsche.

In strategy discussions at Deutsche Bank, where Verdi chief Frank Bsirske sits on the supervisory board, the union swung decisively behind plans to sell off Postbank rather than its whole retail banking operation.

"The sale of the entire business would have been the more courageous solution," one senior executive at the bank later acknowledged, requesting anonymity.



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