Germany’s car industry appears to have avoided the threat of a major strike when engineering employers and the IG Metall trade union on Thursday reached a regional pay deal raising wages by more than 2%.

According to Reuters, after some 17 hours of talks, the two sides said they had come to an agreement covering the southwestern state of Baden-Wuerttemberg, home to carmakers such as DaimlerChrysler.

“The pay rise agreed is an acceptable compromise which secures real incomes and enables workers to get a share of productivity gains,” IG Metall’s regional chief Joerg Hofmann reportedly said after the negotiating marathon ended in the early hours of Thursday in the southwestern town of Pforzheim.

Reuters noted that the deal, which also allows more flexible working hours, has yet to be approved by other regions, but the country’s whole engineering sector tends to take the lead from accords negotiated in Baden-Wuerttemberg.

Economists had warned that widespread industrial action in Germany’s huge engineering sector could dent an economic recovery and deter foreign investors.

Reuters noted that IG Metall had staged brief stoppages at firms across Germany over the last two weeks involving hundreds of thousands of workers and had threatened a full strike if there was no wage deal by the end of February.

IG Metall reportedly said the 26-month contract increases wages by 2.2% from March 2004 and by 2.7% from March 2005. The union, which represents about 3.5 million workers, had initially demanded a 4% hike.

Employers said the deal amounted to a 2.2% rise for the whole 26-month period, Reuters said, adding that the accord meets a key employer demand for greater wage flexibility by giving companies more room to extend working hours beyond the standard 35-hour week, but only by mutual agreement between a company’s workforce and management.

But it does give employers a free hand to extend the working week to 40 hours with no corresponding increases in pay, a move the union argued would have led to thousands of job losses and real wage declines.

Employers have repeatedly emphasised they would not budge on pay until the union agreed to a change in working hours, Reuters noted.