German Chancellor Mr Gerhard Schr÷der has called on union leaders to make moderate wage demands ahead of next year's round of wage negotiations. His call came after leaders of a major union representing 3.6 million steel and electronics workers said they would look for a 7 per cent pay rise at the talks.

"For a really strong economic upswing, the upcoming wage negotiations will be of great importance," said Mr Schr÷der during a visit to a new Volkswagen plant in Dresden yesterday. He said he was sure all parties at the wage talks would act "sensibly". When asked if the 7 per cent rise would be met, he said: "A demand is a demand, the final word is the final word."

The IG Metall union made its demand on Monday, saying that "years of wage moderation had not created any jobs" and that the rise was necessary to offset consumer price rises and increased productivity.

"The empty pockets of working people are a danger to economic activity," said Mr Klaus Zwickel, head of the union, saying that increased pay would increase consumer demand.

Figures out last week showed industrial production slumped by over 2 per cent in October.

At the last round of negotiations in 1999, the union called for an increase of 5.5 per cent for its members and settled for a rise of 3 per cent in 2000 and 2.1 per cent in 2001.

Mr Martin Kannegiesser, the president of Gesamtmetall, the employers' association for the metal and electrical manufacturing industry, said the demand "sends the wrong signals throughout the German economy" and "ignores economic realities".

"Such demands would be a killer for growth," said Mr Horst Siebert, one of the "economic wise men" who advise the government on policy. "In this round of negotiations, nobody is thinking about the unemployed," he said.

Government agencies report that unemployment is expected to reach four million in Germany early next year and economic growth could be as low as 0.75 per cent.

IG Metall union leaders were unrepentant yesterday, saying they would call strikes if their wage demands were not met.

The reaction from German newspapers was unsurprising, with mass-circulation Bild calling it "the ritual of pay-scale poker".

"After years of wage moderation, employees have earned a fair whack," said the newspaper, pointing out that "he who asks for little gets less".