Deal averts German public sector strikes

German unions and government negotiators reached a pay deal yesterday for the country's three million public service workers, heading off a strike that could have damaged the weak economy.

Under the deal, hammered out in talks that included a 31-hour negotiating session, both sides agreed on a gradual pay rise of 4.4 per cent over a 27-month period, Otto Schily, the Interior Minister, said.

"I think this is an acceptable compromise for the employers, [but] a compromise that as far as the financial capacity of the public purse is concerned goes to the limit of what is acceptable," Mr Schily said.

Federal, state and local authorities had a combined budget deficit of €76bn(£50bn) in the first nine months of last year, official statistics showed last month.

Representatives from municipal governments initially balked at the deal, but eventually gave their blessing. Heading into the last round of negotiations, Verdi, the giant public-sector workers' union, saidpublic employees from nurses to tax collectors might begin the first mass walk-outs in more than a decade in the next few weeks if talks broke down.

Unions also wanted wages in the former communist east brought up to the level of those in the west by 2007. They won an agreement that will see eastern German employees' pay progressively raised to parity by 2009.