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German coalition set for collision over job reforms

Written by: Staff

BERLIN, Aug 25 (Reuters) Germany's right-left government is on course for a collision over tricky labour market reforms, with the two parties set to repeat the tussles which marred Angela Merkel's first nine months as chancellor.

Merkel, whose popularity has plunged to post-election lows, this week defended her grand coalition's record and urged her own divided party to embrace the kinds of ambitious changes necessary for Germany to remain competitive.

Conflict between conservatives and their Social Democrat governing partners escalated earlier this year as they clashed over critical reform projects like an overhaul of health-care funding and changes to the country's corporate tax regime.

Now the grand coalition's third major project looms, in the form of plans to tweak the controversial and costly labour market reforms ushered in under former Chancellor Gerhard Schroeder.

''The battle lines can be seen,'' said analyst Eckart Tuchtfeld at Commerzbank in Frankfurt, noting a repeat of the mud-slinging over health and corporate tax reform was likely.

Forced into a partnership with long-time rivals the SPD after managing only a narrow election victory last year, Merkel has battled to keep the coalition, and her party, together.

She has also faced mounting criticism of her leadership as the left of the party wants her to introduce more social policies, while the right seeks market-friendly reforms.

More infighting or open clashes with her coalition partners could erode already weakened poll ratings. The latest Forsa opinion poll showed Merkel's Conservatives (CDU-CSU) unchanged at 31 percent with the Social Democrats at 29 percent.

THORNY REFORMS Labour Minister Franz Muentefering, a Social Democrat (SPD) stalwart, wants to tackle minimum wage levels and also cut costs in jobs centres.

However, contrary to the some conservatives, he doesn't want to reverse the controversial changes introduced by Schroeder -- one of his government's flagship reforms -- which combine unemployment benefit and social security payouts.

''There will be no general overhaul,'' Muentefering told Der Spiegel magazine this week.

Under pressure from factions within her party, Merkel has called for a comprehensive revision of the benefit system, which has enabled recipients to balloon their payments by more than fivefold if they claim the right subsidies.

German unemployment has eased in recent months from a post-war peak of 5 million in March last year. However, the jobless is rate is still over 10 percent and costs of unemployment benefits system have reached 28 billion euros.

The differences between the two parties are likely to lead to conflicts, experts say, but add that neither party has clearly stated their aims as yet, beyond calls from some sides of the conservative party for a wide-ranging overhaul.

''We are discussing things which have not been defined. Neither the CDU/CSU nor the SPD have said what they actually mean by a general or small overhaul,'' said Holger Schaefer, an employment market expert at the Institute for Economic Studies.

Muentefering wants to expand to other sectors a minimum wage agreement beyond construction workers and cleaners. But small- and medium-sized firms say they can't afford the extra costs.

Economists hold out little hope for the reform after plans to tweak the health-care system fell far short of expectations.

''It is unlikely to give any impulses to the jobs market,'' Commerzbank's Tuchtfeld said.

Reuters KR RS1457

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