Between Tube strike and militant firefighters, London seems the capital of labour and money troubles these days. "What is it about the UK?", Americans may ask. It's all about "leadership". If only those English had a Giuliani, the way New York did.

But New York may not be so far behind London when it comes to budget troubles and worker woe. And those troubles can be laid squarely on the shoulders of Saint Rudy and David Dinkins, his predecessor in Gracie Mansion.

Our story starts with New York's gaping $6bn-odd deficit. This crater is not merely due to Osama bin Laden's work on September 11 2001. Indeed, as economist E.J. McMahon of the Manhattan Institute points out, a good share of the deficit is due to the fact that mayors G and D failed to reduce the city's over-large public sector, which still weighs in at about 300,000 jobs. What is more, even before September 11, city workers' wages were rising at twice the rate of revenues. Although the deficits that the city is currently predicting are enormous, they are posited on assumptions that the city can control labour costs.

This, as in the UK, is one heck of an assumption. In the 1990s, Mr Giuliani wrote multi-year, backloaded contracts with unions; the hope was that the more stupendous growth would make the city able to sustain its increases. But the city did not grow as fast as Mr Giuliani hoped. And then came September 11 and the disintegration of the Nasdaq. The mayor departed his job without current contracts with three big unions, the Patrolmen's Benevolent Association, the United Federation of Teachers and - yes - the United Firefighters. But that is not all: clerical workers, sanitation workers and detectives are all seeing their contracts expire this year.

And recall: it is not any city, or any police force, or any group of firefighters we are speaking of here. These increases are for New York's Bravest and New York's Finest, the public servants who served the city so well on September 11.

In recent weeks, after a lot of tension, mayor Bloomberg has been able to write retroactive contracts for the past periods with the police and the firefighters. Both groups got 11.75 per cent over two years, many percentage points fewer than they had been asking for as recently as the summer.

Three factors made things slightly easier for the mayor. One, as city papers are noting, is that he won his job without union backing and so is not beholden to unions. The second is that Mr Bloomberg did not go through the experience of September 11 side by side with firefighters or policemen, or see the 343 firefighters who perished on that day die on his watch. The crude emotional economics here are: he who did not bond, must not pay (as much).

But, most importantly: the unions for their part wisely recognised that New York is a different city, financially, than anyone dreamt it might be just two years ago. They therefore sacrificed on increases, seeing this as a continuation of their Sept 11 sacrifice.

Still, that leaves any number of contracts for the current and future periods still unwritten. And while the police and firefighters forwent outstanding increases this time around, that does not mean they do not believe that they are not due them in future. And who will be able to refuse them?

In short, the labour and money challenges facing New York are every bit as searing as those that challenge London. They are just scheduled to flare up a bit later.

* http://www.nyfiscalwatch.com/html/fwm2002-07.html

© Copyright 2002 Financial Times