The CBI conference: Schroder opts for Third Way

THE NEW German Chancellor, Gerhard Schroder, yesterday pledged to use Tony Blair's Third Way as the model for a sweeping reform of his country's economy.

Mr Schroder said: "I firmly believe this is the way of the future for European social democracies."

Germany, he said, had much to learn from Britain in reducing labour costs and encouraging liberal economic policies within a framework of regulation. Germany, he said, had "deeply rooted structural problems" to eradicate and it would benchmark itself against other economies, in particular Britain.

The prime objective of the new government in Germany would be to cut unemployment. This would be achieved through the creation of an "alliance for work" which would seek ways to reduce social costs of employment and introduce greater labour flexibility. However, this would not be done at the expense of burdening employees with extra costs.

Mr Schroder also outlined plans for reform of social security and pensions and new policies to encourage small and medium-sized enterprises.

Germany is also committed to introducing an energy tax, funded through reductions in business taxes on employers.

Similar proposals for the UK will be recommended today by a taskforce under the chairmanship of British Airways Lord Marshall set up by the Chancellor Gordon Brown.

Mr Schroder said Germany could learn from the way the UK had regenerated regions like Wales, the West Midlands and the North East and apply those lessons to eastern Germany.