- The Washington Times - Friday, November 7, 2003

BERLIN — Conservatives halted a planned tax cut and a disputed overhaul of Germany’s generous welfare state yesterday, threatening a reform drive upon which Chancellor Gerhard Schroeder has staked his political future.

With Europe’s biggest economy in its third year of near-zero growth, Mr. Schroeder has promised to push a swath of economic bills through parliament by year-end to tackle a 10 percent jobless rate undermining his popularity.

But his plans received a setback when conservatives in control of the upper house blocked a planned income-tax cut and legislation to trim jobless benefits.

Mr. Schroeder accused them of putting politics ahead of the national interest. But he also renewed an offer of urgent, face-to-face negotiations with the conservatives’ top two leaders to seek a compromise on the legislation.

“I hope we can overcome this blockade in a coalition of common sense,” Mr. Schroeder told reporters at the chancellery. “In this situation, what Germany needs is cooperation between the big political powers.”

Pointing to the acceleration of the U.S. economy after tax cuts there, the center-left government hopes to give Europe’s largest economy a boost in 2004 by moving an $18 billion tax cut up by a year to January.

But conservatives argue the tax cut will force the government, whose budget deficit already breaks European Union rules designed to protect the euro, to run up too much new debt.

The upper house also rejected Mr. Schroeder’s labor-market bill, with critics saying they want it not only to reduce unemployment benefits but also to put more pressure on people to take low-wage jobs. Both bills are now headed for a mediation committee for what are expected to be weeks of wrangling.

Bavarian Gov. Edmund Stoiber, a leading conservative who lost narrowly to Mr. Schroeder in national elections last year, insisted the opposition was not against tax cuts.

“We want to make the tax cut possible, but with different financing — not on credit,” Mr. Stoiber said.

But he has so far turned down Mr. Schroeder’s appeals for a top-level summit with Christian Democratic Party leader Angela Merkel.

Mr. Stoiber said not more than a quarter of the tax cut should be financed by new borrowing. But he also opposed raising other taxes, leaving uncertain where the conservatives would seek the necessary funds.

“We need clarity by the start of December,” Mr. Schroeder said, also to encourage consumers to splurge in the Christmas period.

The bills must be returned to the upper house in time for its last session on Dec. 19 if they are to take effect as planned Jan. 1.

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