Germany's leading economists are engaged in an ill-tempered war of words over wage levels that may spill over into upcoming pay talks and stop Germany's economic recovery before it starts.

The argument is about whether higher wages would break the vicious circle of low growth and low consumer demand choking Europe's largest economy.

Since 1991, German employees' wages have risen by just 4 per cent, while combined wage and non-wage costs for companies has risen by nearly 22 per cent.

Leading the wage-rise brigade is Peter Bofinger, one of the five "wise men" that advise the government on economic policy. He launched an acerbic attack on colleague Hans-Werner Sinn of Munich's Ifo economic institute, accusing him of living in the "economic middle ages" for ignoring the teachings of Keynes and preaching further wage restraint.

"If that really is the right therapy we have to ask ourselves why the economic situation is so unsatisfactory," wrote Prof Bofinger.

Only a wage increase of at least three per cent will encourage spending, he says.

There are signs that leading German politicians are coming round to Prof Bofinger's way of thinking. Economics minister Michael Glos suggested recently that "not just costs, shareholder value and shareholders interests" should play a role in upcoming wage talks.

"Considerable parts of our economy, such as retailers and trades, are dependent on purchasing power demand," he said. "People therefore have to earn good money for good work and then be able to spend it."

But in the wage restraint corner, employers and economists, such as Mr Sinn, have the backing of powerful voices like the Handelsblatt business newspaper.

"When Mr Glos laments the weak consumer demand of Germans he is, in reality, complaining about his own politics," said the newspaper.