Schröder rides out jeers to win vital vote on economy

Gerhard Schröder's bitterly contested plans to reform the German economy were backed by a party congress of his ruling Social Democrats (SPD) yesterday despite angry opposition from left-wing critics and the country's trade union movement.

More than 80 per cent of the 500 delegates attending an extraordinary party meeting in Berlin voted for the German Chancellor's controversial "Agenda 2010", which aims to halt rising unemployment and kick-start Europe's biggest economy out of recession.

"We have to have the courage to fight the structural problems that have caused unemployment to top the four million mark," Mr Schröder said in a speech punctuated by cheers and catcalls. "We need to reform our social system right now, and who is going to do it if we don't?"

The vote was seen as a badly needed win for the Chancellor. In addition to the recession and the prospect of five million unemployed by the end of this year, his party has nosedived in popularity since it was re-elected in September on a platform opposing the war in Iraq. Mr Schröder had twice threatened to resign if his programme was rejected.

The Social Democrats were trounced in regional elections earlier this year and an opinion poll conducted by Germany's Stern magazine showed last week that only 25 per cent of the electorate supported the party - one of the lowest ratings for the SPD on record.

Yesterday, Mr Schröder's plans were angrily criticised by left-wing Social Democrats who have opposed proposals to cut welfare, sickness and unemployment benefits and relax job protection legislation. The left wing of the party had managed to get several of the more contentious elements of the package watered down before the congress.

To loud cheers, Ottmar Schreiner, a leftist Social Democrat, said: "We are abandoning clear commitments made in our election manifesto. Nobody should be surprised that we are suffering a credibility crisis."

The measures were also attacked by the German Trades Union Federation, which erected a huge model set of scales outside the conference to symbolise the party's abandonment of "social justice".

And Mr Schröder still faces opposition from 12 Social Democrat MPs who have threatened to block the plans in parliament. Such tactics could force him to rely on opposition conservative votes, which would severely weaken his position.

The Chancellor also appears to have failed to repair therelationship between Berlin and Washington caused by his government's anti-war stance and the remarks of a former German justice minister who compared President George Bush with Adolf Hitler. President Bush spoke to Mr Schröder for the first time since November at a gathering of world leaders in St Petersburg on Saturday, but the meeting was limited to a handshake. Their exchange amounted to no more than a "How are you?" from Mr Bush, to which Mr Schröder replied: "Good."

In Germany, it was noted with dismay that while Mr Bush held reconciliatory talks with Russia's President, Vladimir Putin, in St Petersburg, and France's President, Jacques Chirac, in Evian, he was still not prepared to talk at any length to Mr Schröder. Last week German media reports quoted senior White House officials as saying that they were looking forward to a change of government in Germany.

Condoleezza Rice, Mr Bush's security adviser, told Germany's Focus magazine that Washington had not forgiven Mr Schröder. "Nobody understands when things start to take on an anti-American tone," she told the magazine.