German upper house blocks landmark welfare reform

The Buergergeld reform, which the government had planned to introduce from January, will remove sanctions on those who reject job offers, raise benefit payments across the board and grant additional money to recipients during vocational training. The measure passed the lower house last week.

Germany's conservative opposition held up a major welfare reform on Monday, setting the scene for a mediation process to find a compromise that could still allow the introduction of ambitious measures to support the unemployed in gaining vocational skills.

Conservatives in the Bundesrat upper house blocked the reform, which has promised to put more money into the pockets of people on state benefits and to help the unemployed gain new skills, arguing that it promises to be so generous that low-income earners will have less money than those benefiting from the changes- a charge the government rejects. The overhaul is aimed at addressing a shortage of skilled workers in Europe's largest economy and would replace the Hartz IV system that sanctions people who reject job offers.

Germany's skills shortage is holding back businesses, with the aging population posing a demographic time bomb for the public pension system -- a threat ministers want to defuse with immigration and training. The welfare reform would introduce Buergergeld, or "citizens' money", to replace the Hartz IV system brought in from 2005, which shortened the length of time during which the unemployed could receive benefits and tied them to means-testing and requirements to search for a job.

Under Hartz IV, introduced at a time of low growth and high unemployment, unemployed recipients of benefits can have their payments cut if they reject a job offer. Experts also say the benefits are insufficient to cover basic living costs. The Buergergeld reform, which the government had planned to introduce from January, will remove sanctions on those who reject job offers, raise benefit payments across the board and grant additional money to recipients during vocational training.

The measure passed the lower house last week. Now, Labour Minister Hubertus Heil wants to call on a committee that mediates between the two chambers to fast-track a resolution so the rump of the reform can still come into force from Jan. 1.