German chancellor Gerhard Schroeder reportedly has praised DaimlerChrysler’s agreement with the IG Metall union on cost cuts, adding it set a precedent and would boost his country’s sluggish economy.

“I am certain that, after DaimlerChrysler, the negotiations at Volkswagen over cost cuts and job security will lead to a successful agreement,” Schroeder, who is on holiday in Italy, said in a statement cited by Reuters.

The agreement was “a victory for common sense” that would strengthen Germany’s economy, he reportedly added. “The achieved compromise will contribute to boosting the economic recovery and the upswing.”

According to Reuters, Schroeder said the agreement also showed that the German model of consensual relations between employers and unions had proven successful, guaranteeing companies more flexibility while facing global competition, but also securing jobs in Germany.

Schroeder reportedly hinted that rigid collective labour agreements for whole sectors were a thing of the past, saying that individual agreements had to be achieved in companies.

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“Ideological fixations on rigid and schematic solutions are not meeting the different requirements in companies and sectors,” he said, according to the report.

The deal calls for cutting labour costs by €500 million ($US612 million) a year in return for securing the jobs of more than 6,000 German workers to the end of 2012, DaimlerChrysler chief executive Juergen Schrempp and chief worker representative Erich Klemm told the Associated Press (AP).

“After tough and constructive negotiations, we have reached a good solution for DaimlerChrysler and for Germany,” chief executive officer Juergen Schrempp reportedly said.

The deal, reached in talks that dragged into the early morning, removed DaimlerChrysler’s threat to move production of its Mercedes C-Class cars away from its main factory in Sindelfingen, near Stuttgart, to cheaper plants unless workers agreed to labor-cost cuts, AP noted.

Savings from the agreement are due to take effect by 2007, when the next C-Class generation is due to go into production, the company told the news agency – the deal will also have some white-collar workers work longer hours and includes a 20% wage cut for new staff in service jobs, such as security and cafeteria workers.

AP noted that employee representatives earlier had offered some €200 million ($245 million) in savings, mostly through giving up a pay raise.

A main sticking point had been employee demands that the company guarantee jobs for longer than four or five years, the report added.

According to the Associated Press, the company says the Sindelfingen workers have perks such as five minutes of paid break time accumulated per hour and higher premiums for late shifts than workers at German plants elsewhere – it had threatened to move the C-Class work to plants in Bremen, Germany, and East London, South Africa, where costs are lower, a move that would wipe out 6,000 jobs at Sindelfingen.

However, the paid breaks remain for now under Friday’s deal, the report noted.

AP said that tens of thousands of DaimlerChrysler workers across the country staged protests, which they had threatened to escalate if no agreement could be reached.

DaimlerChrysler has been pressing for cost cuts at its luxury Mercedes division, an earnings mainstay for the past several years, as it comes under increasing sales pressure from a slew of new models from rival BMW, AP added.

“The result, in sum, is pleasing,” DaimlerChrysler board member Juergen Hubbert told the Associated Press, adding: “I am grateful for the willingness to reach a compromise.”

DaimlerChrysler board takes pay cut