EUROPE’S biggest economies are braced for a wave of industrial action by public sector workers in the new year that threatens to bring havoc to essential services.

Unions in Germany, France and Italy are expected to vote in favour of strikes as they step up their campaigns for higher pay and greater public sector investment.

Portugal and Spain have been blighted by industrial action already and even in Ireland, where strikes have been rare since the mid-1980s, talks on a new national pay deal have collapsed.

Employers fear that this renewed militancy, which is likely to cost hundreds of millions of euros, will bring the faltering economies of the eurozone to the brink of recession. Faced with tough EU budgetary constraints, which impose limits on public spending, governments are determined to stand firm against inflation-busting pay demands, even though this is likely to trigger strike action.

In Germany this week, arbitrators will attempt to forge an agreement with three million public sector workers seeking pay rises in excess of 3 per cent. Verdi, their giant union, also wants wages in eastern Germany to be brought into line with the rest of the country.

Last week Verdi ordered brief stoppages that disrupted public transport and caused the cancellation of hundreds of flights. The principal arbitrator said at the weekend that he saw little hope of reaching a deal to avert further action.

“The fronts are so far apart that it is barely imaginable that they will move to find a compromise,” Hans Koschnik said.

As well as the wage demands, the union is also threatening action over a plan to extend shop opening hours on Saturdays.

A prolonged strike would prove hugely damaging for Gerhard Schröder, the German Chancellor, whose Social Democratic Party has traditionally counted on union support. His grip on power is already tenuous. With two regional elections in February, he can ill-afford a labour dispute that would further strain his party’s uneasy coalition with the Greens.

Germany’s rattled Government has offered staggered wage increases of 0.9 per cent and 1.2 per cent over 20 months. Even that could derail the country’s modest growth prospect; some economic forecasters say that Germany will be lucky to scrape 0.2 per cent growth this year.

France’s centre-right Government is also heading for a showdown with trade unions early in 2003. The issue is proposed reforms of the state pension system to save money.The three main union movements have pledged to defend the advantages enjoyed by public sector workers and to fight any moves towards Anglo- Saxon-style pension funds.

That has set them on a collision course with Jean-Pierre Raffarin, the Prime Minister, who knows that he must act to keep the state pension system, and, indeed, the country’s overall finances, afloat. With the French tending to work less and to live longer, the system will run up a deficit equivalent to 1.8 per cent of the country’s national wealth in 2020, and to 3.8 per cent in 2040, unless it is reformed.

One option is to abolish the public sector privilege, under which civil servants can claim a full pension after 37 years’ employment, compared with 40 years for their private sector colleagues. Others are to increase social charges, supplement the state system with private pensions, or force all workers to retire later. At present, the French have one of the earliest retirement ages in Europe and generally stop work at 58.

But the three biggest trade union movements — the communist Conféderation Générale du Travail, the hard-left Force Ouvrière and the centre-left Conféderation Française Démocratique du Travail — said last week that they would oppose all these options.

They are planning a joint demonstration at the end of next month as a warning shot across M Raffarin’s bows.

In 1995, the last occasion that a centre-right government tried to reform the pension system, the unions brought the country to a standstill with transport paralysed, the public sector on strike and hundreds of thousands of demonstrators in Paris.

Italy’s trade unions are set to stage a general strike next month to protest against the “disastrous mishandling of the economy” by Silvio Berlusconi, the centre-right Prime Minister and media tycoon. It will be the third general strike since Signor Berlusconi took office 18 months ago and marks a new stage in his trial of strength with union power and the Left.

Guglielmo Epifani, head of Italy’s largest and most militant trade union, the CGIL, which has 5.5 million members, insisted that its aim was not a reprise of 1994, when street demonstrations helped to bring down the last, short-lived Berlusconi administration.

He claimed that Signor Berlusconi and his Cabinet were “completely adrift . . . They have failed to come up with any big ideas. Italy is in decline, Fiat is collapsing before our eyes, yet they have done nothing. We have the right to resort to the weapon of protest.”

Signor Berlusconi, who commands a substantial majority in Parliament, is considered vulnerable over the economy, with election promises over tax reductions, growth, job creation and pensions reform still unfulfilled.

Italy has been hit by a wave of strikes this month over the loss of 8,000 jobs at Fiat. There have also been disruptive strikes by transport workers, public employees and binmen, with Christmas shoppers picking their way through uncollected refuse.

The Italian economy lags behind much of the rest of Europe. It is unlikely to grow at all in 2002, making it the worst year in a decade, and inflation at 2.8 per cent is higher than in France or Germany. Italy’s public deficit is within the EU limit of 3 per cent of GDP, but only with the help of some creative accounting by the Government’s number-crunchers.

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