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Last Updated: Wednesday, 13 August, 2003, 17:08 GMT 18:08 UK
German cabinet backs reform
Chancellor Gerhard Schroeder
Chancellor Schroeder's plans face opposition at later stages
The German cabinet has approved an overhaul of the country's welfare system in an effort to bolster Europe's largest economy.

The proposals to reorganise the jobless benefit system and reform local business tax form part of Chancellor Gerhard Schroeder's "Agenda 2010" reform programme.

The decision follows recent government figures showing the German labour market had deteriorated further in July, with more than one in 10 people now looking for work.

The laws now need the approval of both houses of parliament, where the conservative opposition, who dominate the upper house, have promised the proposals a rough ride.

Chancellor Schroeder called on opposition conservatives to join in "sensible" talks to turn the drafts into law.

"Saying no, employing blockade tactics, doesn't help politics nor above all does it help those people who are expecting a solution from us," Mr Schroeder said.

Economic drain

At a news conference, he blamed strikes in eastern Germany in May and June for the economy's poor performance but said it was showing signs of a recovery which the reform package was designed to support.

"We want to show we take equally seriously the need to undertake deep structural reforms and also the need, through economic and financial policy, to do what is necessary to support the positive tendencies (in the economy)," he added.

The government plans to stimulate growth by bringing forward 15.6 billion euros of tax cuts planned for 2005 to 2004.

Reuters news agency says the main Christian Democrat opposition believe the tax cuts in 2004 will provide at most a net 10 billion euro boost to the economy but will be more than offset by the accompanying measures which will drain some 34 billion euros in 2005-07.

"We say 'yes, in principle' to tax cuts... but giving with one hand while taking away with the other cannot be the approach," Christian Democratic Union (CDU) leader Angela Merkel told a news conference.

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