Chancellor Mr Gerhard Schröder's political gamble to reform the German welfare state and stimulate the economy paid off yesterday when he received widespread party backing for his reforms.

Over 80 per cent of Social Democratic Party (SPD) delegates at a special party conference in Berlin yesterday backed their leader, giving a clear answer to his threat to quit if he did not win support for the reforms. "I am happy, a proud, determined Social Democrat with a government that will lead our country forward," said Mr Schröder after the result. Before the vote he made a passionate appeal to delegates.

"We have to reform this country now, and I mean now," he shouted, his sweat-drenched brow betraying the growing pressure on him to push through economic reforms after countless false starts since last year's election.

Negligible growth has pushed the German economy to a borderline recession while unemployment is likely to reach a record five million, over 11 per cent, by the year end.

Mr Schröder says his proposals, known as Agenda 2010, are the only credible way forward, but SPD left-wingers say the proposals to relax hiring and firing laws, cut social welfare and healthcare coverage are a socially imbalanced attempt to undermine the welfare state.

He dismissed his critics yesterday, saying those who "think everything can stay as it is are deluding themselves and others".

"We need a change in attitude in Germany ... we need to change a lot just for prosperity and social security to remain as they are," he said, reminding delegates that Germany spends 62 per cent of its budget on social welfare and servicing debt, something that he said cannot continue in the face of a rapidly ageing population.

"If we don't reform, our model health care and pension provisions would, within our lifetime, no longer be affordable," he said.

"We have to have the courage to risk a new \ and as a result bid farewell to that which we cherish but which is unfortunately too expensive." Mr Schröder portrayed yesterday's vote as the SPD's last chance to prove it was capable of reform or risk following France's Socialists into opposition, saying: "Whoever avoids reality, reality pushes aside."

The long-heralded reforms were given added impetus when it emerged last month that there will be a €126 billion hole in the German budget over the next three years. Economists have said the country is at risk of deflation.

German Finance Minister Mr Hans Eichel has said that even with economic reforms, Germany would need an "economic miracle" to balance its budget by 2006, the date agreed by euro zone finance ministers.

Yesterday's victory came despite lukewarm applause after Mr Schröder's near hour-long, impassioned speech. His reforms, an "appeal to the hearts and the heads" of ordinary Germans, appear to have been backed by the party delegates with their heads but not with their hearts.

In contrast, they gave an enthusiastic standing ovation to one of Mr Schröder's loudest internal critics.

"What kind of legitimacy does a party conference have when its decisions are brought about by resignation threats," asked Mr Ottmar Schreiner, referring to Mr Schröder's ultimatum in recent weeks, at least the fourth time the German leader has threatened to resign to get his way in internal party disputes.