IG Metall, the powerful union for the engineering and metalworking sectors, officially announced its demand for the upcoming wage round, which begins on Feb. 8, calling for pay increases of 5 percent for the 3.4 million workers in industries ranging from cars to semi-conductors.

The engineering and metalworking sectors are among the biggest and most important in Germany and any deal there acts as a benchmark for other sectors.

True to the traditional sabre-rattling that accompanies the negotiations, employers had already dismissed IG Metall's demands as excessive, irresponsible and impossible to finance.

The employers federation Gesamtmetall, which had said in December that pay increases of more than 1.2 percent would be unacceptable, complained that German companies already faced the highest labor costs among all their competitors.

Job exodus?

Pushing those costs up even further would simply drive more jobs abroad, said federation chief Martin Kannegiesser.

The head of the BVMW federation of mid-sized companies, Mario Ohoven, also warned of a "large-scale exodus of German jobs."

The head of the BDA employers' federation, Dieter Hundt, slammed IG Metall's demands as "irresponsible," saying they sent the "wrong signal."

But IG Metall argued that "wages equal purchasing power and wage increases revitalize the economy."

"Our demands are affordable," said IG Metall chief Jürgen Peters. "Measured as a proportion of sales, companies have never paid so little for wages as they do now," Peters said.

After years of merciless belt-tightening, unions insist employees must now get a piece of the cake.

While unions accepted longer working hours and near-zero wage rounds in the past in return for safeguarding jobs in Germany, companies have continued to slash jobs mercilessly, even as profits soared to record levels.

Nascent economic recovery

And with the euro zone's biggest economy finally seeming to have turned the corner, they see higher wages as the way to kick-start sluggish domestic demand, which has long been the main hurdle to self-sustaining economic recovery.

But employers refuse to accept such arguments, countering that two thirds of jobs in the engineering and metalworking sectors depend on exports, so that even if German consumers had more cash in their pocket, they were unlikely to spend it on German-made goods.

With both sides prepared to dig their heels in, the coming months could turn into a winter of discontent in Germany.

Traditionally, there is a four-week truce while wage talks are ongoing, forbidding any industrial action. But if no agreement is reached by then, strikes might be on the agenda.

A foretaste came on Friday when workers at the Nuremberg plant of electrical appliance maker AEG went on indefinite strike in protest against plans by the group's Swedish parent to shut down the factory.