GERMANY: German chancellor Gerhard Schröder and opposition leaders have agreed proposals to cut corporate tax and abolish subsidies to revive the German economy.
Mr Schröder said the 12 per cent unemployment rate, with 5.2 million out of work, was "the greatest challenge facing German society".
"We have set better conditions for the long term. We must now encourage investment in the short term," said Mr Schröder in the Bundestag yesterday.
Turning to opposition leaders, he said: "Participate with me in this important task."
To make these proposals law, Mr Schröder and his Social Democrats (SPD) need the support of the Christian Democrats (CDU), who control the upper house, the Bundesrat, representing the federal states.
The necessity of a quasi-grand coalition became even more clear yesterday with an electoral crisis in the SPD-governed northern state of Schleswig-Holstein.
The sitting state premier, Heide Simonis, was forced to resign after four rounds of voting failed to confirm her for a new term in office.
It was far from certain last night whether the state's coalition government, a mirror of the SPD-Green coalition in Berlin, can now stay in power. Loss of the state would be a severe blow to Mr Schröder's credibility and tip the Bundesrat balance even more in favour of the CDU.
Mr Schröder's Bundestag address could be summarised under a familiar slogan: "A lot done, more to do". The German leader listed the successes of his "Agenda 2010" reform plan, two years on, and proposed new measures targeted at small- and medium-sized businesses.
Mr Schröder emphasised that he was not interested in dismantling the welfare state, and warned the CDU opposition not to push their luck too far.
"I believe we would make a fatal error if, for very short-term considerations and because worries are weighing us down, we threw overboard the principle of the social state and, with it, the cohesion in our society," he said.
The chancellor suggested a six-point corporate tax cut to 19 per cent, covering the resulting €5 billion shortfall by changing laws that allow German companies to write off one year's losses against another year's profits. The measure was necessary because "uneven corporate taxation in Europe is costing us jobs".
The competition was not coming from new EU member states, he said, but from "older member states - I'm thinking of islands and the like" - a dig at Ireland's low corporate tax rates that have long irritated Berlin officials. Bavarian state premier Edmund Stoiber said the government's reforms were "far too small a step" and that Germany was the "economic stumbling block" of Europe.
Mr Stoiber and CDU leader Angela Merkel met Mr Schröder in the chancellery yesterday evening in a highly anticipated meeting dubbed a "jobs summit" by the media.
The political leaders agreed on reducing corporate taxes and tax relief for small and medium enterprises, but many other reform points remained unresolved.
"It's worthwhile to continue working on common ground," said Mr Schröder after the meeting.