Stakes in Franco-German strikes run high

By Swaha Pattanaik - Analysis

PARIS (Reuters) - Europe's economy faces growing headwinds from strikes in Germany and France just when it least needs an extra brake on activity, but quick settlements on any terms may not be the answer given the long-term economic stakes.

Germany suffered the biggest rail strike in its history last week after drivers staged a 62-hour walkout over pay that snarled goods transport and gave Europe's biggest economy a taste of what could follow if negotiations stall.

Meanwhile, a transport strike that is now in its eighth day in France over plans to do away with special pension privileges is costing the euro zone's second biggest economy up to 400 million euros a day, according to Finance Ministry estimates.

Analysts say it is too early to say if strikes in countries that account for nearly half of the euro zone economy will shave tenths of percentage points off national and regional growth.

Still, they add that how the industrial disputes are resolved could be even more important than how soon they wind up since chunky German pay settlements risk a wage spiral and a French government climbdown over pensions would jeopardise other reforms that would have yielded productivity gains.

"The economy is already slowing down into the fourth quarter and strikes won't help but there are also longer-term issues," said Laurence Boone, economist at Barclays Capital in Paris.

"In Germany, the risk is that wage growth will get out of control. What's also important is that France is the only big European economy where there is a huge reform agenda and it is really important that this pension reform goes through since any boost to European productivity can only come from France.

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