Schroder and unions fall out over reforms

Germany's ruling Social Democrats (SPD) and trade unions tried to play down widening divisions yesterday after a meeting between Chancellor Gerhard Schröder and union bosses ended with raised voices.

The deteriorating situation over proposed economic reforms comes as new figures show that the unemployment rate dipped slightly in June, but only because of a new method of counting joblessness.

Mr Schröder vented his frustration at union bosses on Monday night, telling them in "loud and very clear language", according to those present, that he would not bow to their demands to alter his economic reform programme.

Germany's powerful unions have launched an offensive in recent days, calling the reforms a betrayal of traditional social-democratic values.

Withdrawal of union support would scupper Mr Schröder's re-election hopes in 2006.

Mr Frank Bsirske, head of Verdi, Europe's largest trade union, said last week that Mr Schröder had "failed to create jobs and convince voters of the necessity of his reforms".

Mr Schröder fired back at the weekend, asking union officials whether "people who have nothing to offer content-wise, like Mr Bsirske, should decide strategy".

The unions have attacked reform plans, such as slashing dole payments, as unsocial. However, SPD officials say the unions' proposal to stimulate the economy with deficit spending would result in larger future debts and even higher wage costs, strangling the jobs market.

The deteriorating relationship between the SPD and the unions - traditional allies for over a century - worsened at the weekend with the formation of a new left-wing grouping which announced its intention to run in the next general election.

"Never in the history of the republic was the potential for a new party as great as today," wrote Mr Oskar Lafontaine yesterday. Mr Lafontaine is the former finance minister fired by Mr Schröder and now the government's harshest left-wing critic.

Differences over the reforms remain, but union and SPD leaders tried to play down their significance yesterday.

Mr Bsirske said he "didn't want to bring about an exodus from the party". Another senior SPD official said "no one was interested in a fraying of the party".

Germany's seasonally adjusted unemployment total fell by just 1,000 to 4.369 million, giving an unchanged unemployment rate of 10.5 per cent.

Unemployment figures no longer count around 60,000 people in training schemes. The unadjusted rate, which is more closely watched, showed 4.233 million people without work in June, a drop of 60,000 on May.