by Guy Jackson
BERLIN - German Chancellor Gerhard Schroeder held crisis talks with opposition leaders on Thursday to discuss a package of measures designed to revive an ailing economy crippled by record unemployment.
His proposals, made in a speech to the Bundestag lower house of parliament, were designed to reduce the country's ranks of 5.2 million jobless, the highest figure since the end of World War II in 1945.
After making his eagerly awaited proposals, including a sharp cut in corporate tax, Schroeder sat down to evening discussions with Christian Democratic Union leader Angela Merkel and Edmund Stoiber of the CDU's Bavarian sister party, the Christian Social Union.
Merkel had dismissed Schroeder's ideas as "insufficient" in her response to his speech.
The chancellor put forward a plan to cut corporate taxes from 25 percent to 19 percent, followed by a radical overhaul of the tax system in the autumn as he searches for ways of creating jobs in the eurozone's biggest economy.
With a general election expected in September 2006, unemployment has become the central issue in the conservative opposition's attempts to wrest control from Schroeder's coalition of Social Democrats and Greens.
Schroeder's Social Democratic Party (SPD) are currently trailing the opposition in opinion polls and have suffered a string of reverses in state elections.
And there was another political blow for his party on Thursday when Heide Simonis, the long-time leader of the northern state of Schleswig Holstein, failed four times to gain re-election as leader of the state assembly following elections in which the Social Democrats made heavy losses.
In his address to a packed Bundestag chamber, Schroeder said joblessness was "the biggest challenge facing our society".
He reiterated that the government had already cut corporate taxes over the past two years, but he proposed to go further in a bid to boost growth and encourage companies to recruit new staff.
In order to fund the corporate tax reduction, he proposed making savings by closing tax loopholes and reducing subsidies, and he called on the opposition to back him.
More specifically, he said the government would make it more difficult for companies to offset previous losses against their taxes.
"We have to work seriously together to abolish these tax advantages," he said.
Schroeder also announced a two-billion-euro (2.67-billion-dollar) injection of funding into transport infrastructure, which he said would boost "investment in increased mobility and the German construction industry", a sector which is particularly troubled.
Turning to measures to create jobs, the chancellor announced he would help small and medium-sized companies by making it easier for them to obtain loans or credits at two percentage points under the market interest rates.
Schroeder's proposals were condemned by Merkel, who is hoping to unseat him next year.
"The chancellor is at best a repair man, but he is no architect of a new social market economy," she said.
One analyst, Holger Schmieding of Bank of America, agreed, saying the chancellor had failed to convince anyone that he had a firm grip on the country's economic problems.
"Germany is not yet ready to live up to the labour market challenge posed by record unemployment at home and increasing competition from more energetic low-wage countries in the East," Schmieding told AFP.
And he saw "little reason to hope" that Schroeder would accept the opposition's proposals to make the labour market more flexible, for example by relaxing regulations that make it hard to dismiss employees.
About 5.22 million people are unemployed in Germany, representing 12.6 percent of the workforce, according to February's figures.

03/17/2005 17:06 GMT