GERMANY: FROM LABOR STEW TO CURRENCY CAULDRON

No sooner does German industry take care of a labor dispute than it confronts a currency crisis.

The recent volatility in world currency markets is presenting German industry with a new threat to its global competitiveness. Over the last week, the German currency, the mark, has strengthened dramatically against other major currencies, including the United States dollar. The mark was quoted at 1.385 to $1 yesterday.

A strong mark can be bad news for Germany's export-driven industry, making German-made goods more expensive in foreign markets. The high mark thus may serve to increase pressure on employers to reduce labor costs.

But, Germany's largest trade union, the nearly 3-million-strong IG Metall, announced Tuesday it had reached agreement with employers in the engineering and metalworking sector to end a strike that began Feb. 24. Workers could be back on the job as soon as tomorrow.

The two-year agreement gives workers a roughly 4 percent pay raise per year. The union had sought 6 percent a year. The deal is expected to set the pace for contract negotiations in other sectors, including chemicals and public services.

In the engineering-sector deal, the employers association, Gesamtmetall, apparently fell short of achieving its main aim: securing union concessions that lower costs.

Employers had called for the postponement of a previous commitment shortening the workweek by one hour to 35 hours per week. Under the just-agreed pact, however, the 35-hour week is to be implemented as scheduled on Oct.1.

Perhaps the most appealing aspect of the contract agreement for employers is that it offers predictability in the labor sphere, allowing industry more latitude in strategic planning.

The IG Metall settlement potentially could complicate the cost-cutting effort. Some employers have expressed concern that the deal will raise their costs. The 4 percent wage hikes outpace the annual inflation rate, now about 2.3 percent.

To stifle inflationary pressure, the Bundesbank, Germany's central bank, could raise interest rates, economists warn. But such action would also strengthen the mark further, increasing the burden on German competitiveness.