Rise in German unemployment puts pressure on cutting debt

Unemployment in Germany rose again in April to its highest level since German reunification, putting further pressure on Berlin's commitment to reduce debt at the behest of Brussels.

Chancellor Gerhard Schröder will also come under pressure to implement unpopular labour market reforms.

The seasonally adjusted jobless total rose by 44,000 to 4.46 million people in April, an unemployment rate of 10.8 per cent and the highest April unemployment level since reunification in 1990.

The unadjusted figure, more closely watched in Germany, fell 112,700 to 4.495 million.

"The employment market can not recover from the background of structural problems and economic weakness," said Mr Florian Gerster, head of the Federal Employment Office in Nuremberg.

Rising unemployment will add up to €7.5 billion to Germany's dole bill and increase the budget headache of the Finance Minister, Mr Hans Eichel.

He is already under pressure from Brussels to cut spending this year but a government spokesman admitted last week that Germany is likely to overshoot the three per cent of GDP debt ceiling put in place to protect the euro this year for the second time in a row.

The continued rise in unemployment comes against a backdrop of falling growth forecasts, dropping business confidence and looming mass redundancies.

Last week the government slashed its economic growth forecast from 1 per cent to 0.75 per cent.

Already the OECD and German economic institutes predict Europe's largest economy to grow by just 0.3 per cent this year.

Deutsche Bank and Siemens, two of Germany's blue-chip companies, are planning to let go 50,000 workers between them in the coming months.

The unemployment figures are likely to increase the resolve of Chancellor Schröder to push through his package of unpopular economic reforms, called Agenda 2010.

The reforms include proposals to shorten the dole payment period, relax hire-fire laws and reduce health care and pension payments.

The measures have been rejected as imbalanced by Germany's powerful unions. Talks between the Chancellor and the head of Germany's trade union umbrella federation made little headway on Tuesday.

"We exchanged our positions, each of us stuck to their own, I to mine and he to his," said the German leader.

Mr Schröder has made veiled threats to resign if his party does not back him on the reform plans at a party conference next month.

Before then, on May 25th, voters in the city state of Bremen go to the polls to elect a new regional parliament.

It would be a severe political blow for the Chancellor if voters rejected the Social Democrats, who have ruled Bremen since the end of the Second World War.