German Unions Rally Thousands against Schröder's Reform Plans

Union organizers said almost 100,000 people took part in nationwide demonstrations, in one last major rally against the government's reform plans before a special congress of the Social Democratic party (SPD) on June 1.

German Chancellor Gerhard Schröder agreed to hold the party congress next week, since much of the SPD's grassroots are unhappy with a package of sweeping reforms the chancellor announced in March to revive flagging German growth and shore up the country’s creaky social security system.

Both the left-wing faction of the SPD and the unions hope Saturday's demonstrations will help derail the government's so-called “Agenda 2010”, which aims to cap unemployment benefits at 12 months and make it easier for small firms to hire and fire new workers.

"Social reforms grab into the pockets of the small people in order to plug holes in the budget," Michael Sommer, head of the German Trade Union Federation, said at a rally in Schröder's hometown of Hannover. "Germany isn't a cheap-wage country and it shouldn't ever be allowed to sail under a cheap flag."

But the unions' increased rhetoric will likely leave the chancellor cold. After scraping to win in last September’s general election, he has staked his political survival on pushing through the unpopular measures.

Grinding to a halt

In recent years, Europe’s largest economy has ground to a halt under the weight of its generous welfare system and constricting labor market policies. Economic growth slowed to only 0.2 percent in 2002 and German unemployment is running at a five-year high of over 10 percent. This year, the economy is now teetering on the brink of recession after it shrank the first quarter of 2003.

Speaking at the SPD's 140th anniversary celebrations on Friday, Schröder attempted to convince the party faithful that deviating from his reform course would spell disaster for the Social Democrats: "Either we will modernize ourselves -- naturally as a social market economy -- or we will be modernized without a doubt by unchecked market forces."

Schröder has effectively turned the June 1 party congress into a vote of confidence, since he has indirectly threatened to resign should the SPD not back his reform package. But even if he manages to get his center-left coalition to pass Agenda 2010, down the road he and the Social Democrats will likely have difficulty trying to make amends with the unions, which are a traditional SPD constituency.

And comments by German Defense Minister Peter Struck on Saturday showed just how wide the rift between the SPD and the unions had become.

"Some people are abusing the friendship that ties us to the unions," Struck told the German news agency DPA, referring to the latest attacks against the government's reform plans. "It's completely uncalled for behavior for which I have zero understanding."