Germany's IG Metall engineering trade union is set to demand a pay rise of 5 to 7 per cent for 2002 in defiance of pleas for moderation from the European Central Bank, Chancellor Gerhard Schr÷der and employers.

"The most recent wage rounds did not live up to the workers' expectations. They want to see cash now," Mr Juergen Peters, deputy head of the union, said. The leadership of the union, which has 2.8 million members in key industries such as car-making, will today formally announce its recommended pay demand to regional negotiators.

At 7 per cent, the pay demand would be over four times the rate of inflation, which stood at 1.7 per cent in November. It would send a strong signal to unions across Europe, and coincide with a near-recession in Germany - where unemployment is expected to reach four million this winter.

The demand would spell trouble for Mr Schr÷der less than a year before the September general election, in which the weakening economy is set to be the main battleground. He is counting on unions to show restraint, which would curb inflation risks and pave the way for more interest rate cuts by the European Central Bank - his best hope to boost the economy.

But the unions, in what has been seen as a snub to Schr÷der, last week cancelled a planned meeting before Christmas with him and industry chiefs for so-called "Alliance for Jobs" talks.