The German Parliament approved a series of controversial spending cuts today, giving Chancellor Gerhard Schroeder an important victory in his battle to curtail the country's soaring national debt and bloated welfare system.
After four days of debate, the lower house, or Bundestag, gave its final assent to the government's austerity package, which will slash $16 billion from next year's federal budget by cutting pensions and jobless benefits.
Despite widespread street protests, Schroeder has persisted with his campaign to prune the welfare state, because he contends Germany must stop living beyond its means. But there are few signs that voters are willing to accept his argument that such sacrifices are necessary to bolster prospects for growth and to restore the vitality of the world's third-largest economy.
The unpopularity of the measures has triggered fierce fighting among Schroeder's fellow Social Democrats, some of whom fear the party is alienating core supporters who have long favored a large state sector.
The Social Democrats have suffered a succession of electoral setbacks at the state and local levels since summer, largely because many of the party's traditional voters stayed home or bolted to the opposition because of Schroeder's economic policies.
Fearing a backlash at a party congress next month, Schroeder has sought to play down his pro-business reputation by embracing the cause of workers whose livelihoods were threatened by foreign takeovers or corporate bankruptcy.
Late Wednesday, Schroeder intervened to salvage the country's second-largest construction firm, Philipp Holzmann Group, just after it filed for insolvency following hidden real estate losses worth in excess of $1.3 billion.
After announcing a $130 million government loan that will keep the company afloat for the next few months, Schroeder was cheered by a huge crowd of construction workers who had gathered outside Holzmann's headquarters.
The government bailout has stirred controversy because it called into question Schroeder's commitment to restructuring the economy. Schroeder was elected in September 1998 after vowing to solve an unemployment crisis that has affected nearly 11 percent of the labor force.
While economists have applauded the chancellor for his efforts to curtail the national debt, now in excess of $800 billion, or about $10,000 for every German citizen, there are lingering doubts whether he will be able to persuade his party--and the public--to slash public spending while offering corporate tax cuts in the hope of encouraging the creation of new jobs.