German Chancellor Gerhard Schroeder signalled on Saturday he will shun big new economic reforms before the autumn 2006 election, saying his government will focus on implementing its existing, unpopular welfare revamp.
Schroeder said after a cabinet brainstorming session in the former capital city of Bonn there was no need at present to tackle the next step in the government's reorganisation of the health system, a proposed compulsory "citizen's insurance".
Schroeder rejected charges from the opposition conservatives and business lobbies that he had effectively called a halt to reforms in the face of street demonstrations and a string of likely regional election defeats.
"Reform doesn't mean leaning back when you've done a law. That's when the work really begins," Schroeder told a news conference in Bonn's former government district, eerily deserted since the move to Berlin in 1999.
His Social Democrats are forecast to score badly in an election on Sunday in the small, conservative-ruled south-western state of Saarland, in line with a trend of election defeats since early 2003.
It will be the first of four regional elections in September that will highlight the party's unpopularity for imposing painful reforms aimed at ending years of economic stagnation and cutting unemployment.
Schroeder has said he will stand for a third term in 2006 but his SPD need to close a 20-point gap in opinion polls behind the conservatives.
The toughest part of Schroeder's reform drive, cuts in jobless benefit and more rigorous means-testing to encourage the long-term unemployed to take any form of work, doesn't come into force until next January.
"The cabinet is totally in agreement that we will maintain our reform course," Schroeder said.
But the measures announced on Saturday were minor - implementing a 0.25 percent rise in nursing care insurance for childless people, and raising contributions for dental care and sickness benefit.
And there were only vague pledges for fresh steps to cope with the ageing of a population expected to become the world's oldest in coming decades - a trend set to choke off economic growth unless welfare costs stop rising.
A proposed broad reform of nursing insurance to care for the growing ranks of the elderly would be discussed, as would plans to boost the birth rate by improving day care for children and financial incentives for parents, Schroeder said, without setting a timeframe or giving details.
He said health reforms implemented at the start of 2004, including a 10 euro quarterly fee for visits to the doctor, had enabled statutory health insurers to record a surplus of 2.5 billion euros in the first half of 2004 after a two billion euro deficit in the year-earlier period.
But Germany had a long way to go to catch up with the Netherlands and Sweden, which streamlined their costly welfare systems in the 1990s and were now enjoying stronger economic growth and lower unemployment, Schroeder said.
Swedish Prime Minister Goran Persson, a fellow Social Democrat, was invited to the conference to explain how he revamped Sweden, and gave Schroeder a pep talk.
"I'm quite optimistic about the possibility of a turnaround in the German economy and then election time is always something that comes as a huge possibility for a chancellor who has (taken) the right direction," Persson told reporters.