18 February 2005

EZA 661: Germany; Reform

German public sector modernisation – still a political process
The agreement between the government and the trade union Ver.di on working conditions in parts of the German public sector on 09Feb was heralded by the government as a landmark for greater flexibility and cost savings. The law, which will take effect 01Oct05 provides a streamlining of rules governing career paths for lower and higher paid employees, emphasis on merit for promotion and pay, introduction of a bonus system and time flexibility with a standard 39 hour working week. While these aspects are clearly positive in creating a more efficient public sector, the Laender (States) have heavily criticized the agreement for the pay increase (€ 300 or 1.2% p.a. on average) and the introduction of bonus payments only on a gradual basis. Also the government’s commitments have been made specific whereas the concessions by the unions have been left more vague, a shortcoming, which caused the opt-out by the Laender - accounting for almost 30% of public employees.

SummaryAsset conclusions: No immediate impact, given the long-term perspective; long-term positive for German bonds, given public sector cost savings.

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© Graham Bishop