Leading the fight is the powerful IG Metall union, which represents about 3.9 million workers in the nation's crucial metal and electrical engineering industries.

It is seeking a six-percent wage hike and the right for staff to switch from a 35- to a 28-hour week for two years – with limited salary loss in some cases.

After mobilising more than 600,000 workers in a series of short “warning strikes” this month – including at Volkswagen, BMW, Bosch and Siemens – union leaders return to the negotiating table Wednesday for a decisive round of talks with company bosses.

If no progress is made, IG Metall has threatened 24-hour walkouts and raised the prospect of staging its first open-ended strike since 2003.

“We are prepared for anything,” IG Metall boss Joerg Hofmann said last week.

With tensions rising, the battle is being closely watched at home and abroad.

Leading the way

The biggest hurdle in the talks is IG Metall's insistence that employers top up the salaries of some of the workers who choose to reduce their hours, such as low-earning shift workers or those caring for children or ailing relatives.

Employers have slammed the demands as too costly and even discriminatory to staff already working part-time without additional compensation. They have so far only offered a two-percent wage increase.

But the union, which was instrumental in pushing through a 35-hour week in the 1990s, says it is fighting for a better work-life balance and insists German companies can afford it at a time when order books are full and unemployment is at a record low.

The influential IG Metall has already inspired other unions to flex their muscles too.

The DBB public service union said it will ask for “a significant” salary hike in next month's negotiations with the government, and wants the work week lowered from 41 to 39 hours for nearly a million civil servants.

“We held back in the previous wage negotiations. That won't be the case this time,” DBB head Ulrich Silberbach told the business weekly Wirtschaftswoche.

The union will unveil its demands on February 7th. Last year, it sought a five-percent wage increase.

Germany's largest services sector union Verdi is meanwhile calling for a six-percent salary boost for 130,000 Deutsche Post workers or the option to trade some of the cash for more time off.

The “period of wage moderation” that has played a key role in German competitiveness has “ended”, the country's “wise men” council of economic experts said in its latest report, a trend that has accelerated in the past two years as the economy picked up speed.

Powering inflation

The fight for bigger payslips in Europe's powerhouse economy is welcome news for the European Central Bank which sees higher wages as key to driving up stubbornly low inflation.

Despite a robust economic recovery, eurozone inflation remains far off the bank's goal of just under 2.0 percent, discouraging it from ending crisis-era stimulus measures.

The unions' demands are also likely to be cheered by critics of Germany's huge current account and budget surpluses, who believe giving Germans more spending power will drive up consumption and spur demand for imports – indirectly benefiting other countries.

“Faster wage growth in Germany – where the economy is operating above capacity – would also help Germany's European peers because it would help lift euro area inflation,” Christine Lagarde, head of the International Monetary Fund, wrote in a recent blog post.

The German government has largely kept mum on the salary debate as Chancellor Angela Merkel's conservatives and the centre-left Social Democrats remain locked in tortuous talks on forming another coalition government.

But Berlin will have to show its hand soon.

On February 26th, Interior Minister Thomas De Maiziere will open the negotiations with the DBB civil servants' union and face down their demands for more pay – at a time when Berlin's state coffers are fuller than ever.