Pay increases in Ireland have become a twice yearly affair for many, but wages in Germany have barely kept up with inflation for the best part of a decade.

A new study out this week shows that average German salaries will rise by just 0.8 per cent this year, compared to an EU average of 2.8 per cent.

"The exploding energy costs and the doubling of prices with the euro introduction mean I really have a lot less money in my pocket," said Sascha Tauer, a German civil servant whose salary has increased by 12.8 per cent in the last seven years.

With German economic growth forecast to hit a six-year high of 2½ per cent this year - outstripping growth in the US and Britain - union leaders and politicians are demanding an end to the wage restraint of the last lean years.

"The economic recovery is here. Now we need the courage to push up the [ wage] spiral," said Mr Franz Müntefering, the SPD labour minister and deputy chancellor.

He was joined by chancellor Angela Merkel, leader of the more business-friendly Christian Democrats (CDU).

"It's self-evident that, if there is [ increased] economic substance in industry and companies, that employees should also have a share of this," said a government spokesman, describing Dr Merkel's position.

The powerful steelworker and engineering union IG Metall has said that it will be looking for at least a 5 per cent rise for its 800,000 members in pay talks next year.

"I see no reason for modesty. Not a week goes by without some company announcing record profits . . . something that comes from the heads and hands of our members. That's what we want a part of," said Bavarian IG Metall official Werner Neugebauer.

"I have no doubt that colleagues in companies doing particularly well will be looking for an 8 per cent increase."

Even Germany's Bild tabloid got in on the act, printing on page two a letter demanding a pay rise which readers can cut out, sign and present to their bosses.

But almost as loud as the union demands for higher wages are the warnings from employer organisations and economists that generous wage increases will stop cold the burgeoning economic upswing.

"Big pay increases across the board would be a catastrophe for the labour market," said Dr Norbert Walter, Deutsche Bank AG chief economist, suggesting that an end to wage restraint would slow the falling unemployment rate, currently at 10.2 per cent and hit Germany's recovering economic competitiveness.

Wage increases will be seen as a potential inflation threat in the European Central Bank, which yesterday increased its interest rates for the sixth time this year.

The question facing German politicians and social partners is which is more expensive: across-the-board wage increases or a return to consumer stagnation?

Booming exports have kept the German economy out of recession for years in spite of cautious consumers keeping their money in their pockets.

Statistics out this week showed why Germans and their money have been so difficult to part: the cost of living has increased so much in recent years that, despite pay increases, the average German's purchasing power is at a 15-year low in real terms.

The federal statistics office said that the average German household had total net income of €33,700 in 2005. But the average pay rise of 30 per cent since 1991 was swallowed by rising costs, meaning that German consumers have a total of €18 billion less to spend. Union leaders say a wage increase would give a psychological boost after five grim years of near-recession.

It would also cushion the blow of next year's three point rise in the VAT rate, they say, and safeguard the still fragile consumer confidence recovery. Despite a five-year consumer confidence high, retail sales still fell unexpectedly in October.

A possible compromise in the wage restraint debate may be the introduction of "investive salaries", offering employees a share in their company rather than receive a pay increase - a little-used concept in Germany.

"It's already a self-evident concept for managers and business leaders. This successful concept shouldn't just apply to managers; workers should also have a share," said Bavarian state premier Edmund Stoiber.

But it may well be a tough sell: a recent survey for Stern magazine suggests that German employees are evenly divided on "investive salaries", with 49 per cent opposed to the concept.