03 July 2003

EZA 545 - Germany-Politics

Turning point for union power in Germany reached
On June 28 IG Metall, Germany’s largest union, admitted defeat — the first time since 1954 — and ended a four-week strike in Eastern Germany campaigning for a shorter working week. This is a turning point in the influence of Germany’s trade union movement and suggests that greater labour market reform is fast becoming possible. Structural forces at work, including the rise of new non-unionised sectors in the economy and the decline of the unions’ core support group of workers, suggest that the amount of power the unions can exert in future will decline. Moreover, the general public increasingly believe that union power is a block to much-needed economic reforms, giving the government greater power to act independently of union support. One immediate outcome of the failed strike will be further erosion of left wing resistance to Chancellor Gerhard Schröder’s Agenda 2010 reform program. That said, although the trend of gradually weakening union influence is firmly in place, there is still a long way to go. In the medium term the vulnerability of the unions removes an obstacle to the momentum for economic reforms to make the German economy more competitive.

SummaryAsset Conclusions: Positive for German stocks relative to bonds; in particular for medium size firms (MDAX, SDAX-style), exposed to domestic German market

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© Graham Bishop