German state workers win two-stage pay rise of more than 4 percent

POTSDAM (Reuters) - German unions and public employers agreed on a two-stage pay rise of more than 4 percent for state workers late on Saturday, in a further wage agreement that is expected to boost private spending in Europe's largest economy this year.

German unions have been emboldened after IG Metall, the country's biggest trade union, won a 3.4 percent pay increase plus a one-off payment of 150 euros for the 3.7 million engineering workers it represents.

The pay hike was considerably above the inflation rate, which was 0.9 percent in 2014, and unions have said it was high time for an increase in public sector pay which has lagged wage increases in the private sector in recent years.

With the agreement, around 800,000 state workers will see their pay rise by 2.1 percent retroactively from March and by 2.3 percent from March 2016, unions and employers said after a third round of negotiations in Potsdam.

Since the deal is likely to be adopted by the 16 state governments for a further 2.2 million civil servants, over three million people will probably profit from the wage agreement.

The trade unions originally had demanded a 5.5 percent pay rise. Frank Bsirske, the head of the powerful services trade union Verdi, called the agreement a success anyway.

"With the deal, the state workers will profit from perceivable increases of their real wages," Bsirske said.

Jens Bullerjahn, chief negotiator of the states, said the wage deal was well balanced regarding the economic fundamentals and the financial capabilities of the public sector.

German schools, kindergartens, hospitals and some regional airports were hit by short warning strikes over the last weeks as the unions sought to raise the pressure ahead of the talks.

Last year, German real wages posted their largest increase since the data was first collected in 2008, data from the statistics office showed on Thursday, in another positive sign for household spending which is expected to be a key pillar of support for the German economy also this year.

Shoppers are also benefiting from record low unemployment in Germany, low inflation and cheap oil.

(Reporting by Thorsten Severin; Writing by Michael Nienaber, editing by Susan Thomas)