Germany reaches compromise plan on landmark welfare reform - sources

However, conservatives in the Bundesrat upper house arguing that the reform would leave low-income earners with less money than those benefiting from the changes - a charge the government rejected. Under the compromise proposal, a planned waiting period of two years, during which housing costs would be covered without further review, will be reduced to one year.

Germany's ruling coalition parties and opposition conservatives reached a compromise on a major welfare reform on Tuesday, according to a proposal seen by Reuters, paving the way for new measures to support the unemployed in gaining vocational skills.

Conservatives in the Bundesrat upper house had blocked the reform before wrangling with the governing parties to find a compromise that sources said they expect a parliamentary mediation committee to approve at a meeting on Wednesday. The welfare reform will introduce Buergergeld, or "citizens' money", to replace the Hartz IV system brought in from 2005, which sanctions people who reject job offers.

The overhaul is aimed at putting more money into the pockets of people on state benefits and to address a shortage of skilled workers in Europe's largest economy. However, conservatives in the Bundesrat upper house arguing that the reform would leave low-income earners with less money than those benefiting from the changes - a charge the government rejected.

Under the compromise proposal, a planned waiting period of two years, during which housing costs would be covered without further review, will be reduced to one year. A so-called trust period of six months, during which sanctions for lack of cooperation would have been waived, will be dropped altogether. 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.

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.

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