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Last Updated:  Friday, 14 March, 2003, 12:32 GMT
Schroeder calls for 'massive effort'
Gerhard Schroeder
Mr Schroeder is under pressure to act
German Chancellor Gerhard Schroeder has called for a "massive joint effort" to revive the country's huge but flagging economy.

Every sector of society would have to make its contribution, Mr Schroeder told parliament in a speech intended to lay out his ideas for economic reform.

In practical terms, this means measures to ease Germany's stifling labour laws, making it cheaper to hire and fire, and trimming generous welfare provision, Mr Schroeder said.

To sweeten the pill, Mr Schroeder announced that the government would be giving out 15bn euros (10.1bn; $16.2bn) in low-interest loans to local governments and the hard-pressed construction sector.

No serious tax hike or expansion in state spending would be necessary to fund his plans, Mr Schroeder insisted.

Great expectations

Mr Schroeder's speech to the lower house of parliament was one of the most keenly-awaited events of his near five years in power.

His speech had the title 'courage for change' - however he did not offer a root-and-branch reform of the system, but an exercise in careful pruning

Critics have complained that Mr Schroeder's left-wing government has done little to deregulate the economy, something business leaders see as crucial.

German unemployment has soared as high as 4.7 million and, at more than 11%, its jobless rate is among the highest in Europe.

At the same time, economic growth has slowed almost to zero, and the country's stock market has been among the worst performers in the world.

Softly softly

Expectations for Mr Schroeder's speech have been high.

Gerhard Schroeder on TV
Voters are waiting for Mr Schroeder to deliver
His supporters say that it has taken this long to produce concrete proposals because he has ambitious and far-reaching economic plans.

Critics argue that he is hamstrung by the caution of Germany's powerful trade unions, his core supporters.

Mr Schroeder's government was re-elected in September by a narrow margin, but has since slumped in the polls.

Coming up with a plan to turn the economy around has been seen as crucial for Mr Schroeder's political future.

Swift setback

Mr Schroeder's plans for tackling economic reform have not run smoothly.

As an indication of the difficulties of pushing through unpopular measures in the current political climate, the upper house of parliament quashed the government's plans to raise taxes even while Mr Schroeder was speaking.

The package of tax measures was supposed to raise 3.5bn euros this year to help reduce Germany's budget deficit.

Germany has been in constant difficulties this year and last with the European Commission, which aims to prevent EU member states running up large budget deficits and potentially destabilising the euro.

The German Government still hopes to rescue parts of the legislation.

The BBC's Tristana Moore in Berlin
"Schroeder's job is on the line"

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German economy at a standstill
26 Feb 03 |  Business

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