Top members of German Chancellor Gerhard Schröder’s Social Democratic Party (SPD) announced a special summit next week to work towards agreement over controversial reform proposals causing deep rifts within the party.

"There are a few points that we can smooth over that we need to talk over and that can be formulated more sensibly," SPD parliamentary floor leader Franz Müntefering said in Berlin on Monday.

The conciliatory tone from the SPD leadership is in sharp contrast to the hot war of words that broke out last month after six rebel left-wing backbenchers voted against the chancellor’s crucial health reforms, nearly robbing the government of its so-called "Chancellor" majority. Schröder then decided to link his political fate explicitly to his planned package of welfare and economic reforms, saying that the future and success of the government would be measured by whether it managed to revamp the country’s bloated welfare system and ailing economy.

That threat seems to be working with some of the SPD rebels – who accuse Schröder of betraying the party’s roots with reforms that will trim the generous welfare state and scale back pensions. A few appear to be now grudgingly falling into line to save the Chancellor’s package of reforms he has named "Agenda 2010".

One of the rebels, SPD parliamentary member, Rüdiger Veit indicated in a television interview on Tuesday that the ruling center-left coalition of Social Democrats and Greens might yet be able to pass the painful reforms. "I believe we’re on the way to a good compromise on the issue," he said.

Important October vote

With the clock ticking on towards a key October 17 vote on labor market reforms, the SPD appears to have decided to use both sticks and carrots to get the rebel MPs to toe the government’s line.

SPD parliamentarian Klaus Brander told German daily Berliner Zeitung that the party was considering the idea of changing the proposed legislation to creating better conditions for the elderly unemployed, so that people over 55 didn’t have to dig into their pensions savings. Left-wingers are particularly incensed over labor reform proposals that include loosening strict laws on employee protection and collapsing unemployment money and welfare benefits.

However, SPD Secretary General Olaf Scholz was upbeat after a harmonious board meeting on Monday, which saw several SPD rebels signalling cooperation with the government over the planned reforms. "I have a feeling that we’ll manage a majority in parliament," he said.

But even as the SPD might be on the verge of re-establishing some semblance of party discipline, the conservative opposition of Christian Democrats (CDU) and its Bavarian allies Christian Social Union (CSU) are seeing growing concerns over their own reform agenda. The conservatives control the Bundesrat, or upper house of parliament, will need to approve most of Schröder’s reforms.

A neo-liberal CDU?

On Monday, Angela Merkel, leader of the CDU approved controversial reform proposals made by the opposition-appointed Herzog committee, headed by former CDU president Roman Herzog, which recommend decoupling health and nursing premiums from people’s earnings and levying a lump sum across the board instead among other things. Merkel spoke of a "paradigm shift" and said it presented a "most important switch for Christian Democratic politics."

The move however has come under fire from left-wing in the CDU. Deputy leader Norbert Blüm, a former labor minister under Chancellor Helmut Kohl, said the plan was socially unbalanced and would hurt common people while letting the more affluent off the hook. Blüm warned on Monday that the Herzog proposals would turn the party into a neo-liberal party unattractive to most German voters.

CDU man Hermann-Josef Arentz announced he’ll fight the suggestions tooth and nail. "The bottom line of these proposals is that people with low incomes will face a bigger burden as they will have to pay the same premiums as those with higher incomes," Arentz said. "The Herzog committee itself reckons that about 40 billion euros in tax refunds will be needed to compensate the not-so-well-off in order to be able to call the scheme socially balanced and just ... Do you really believe that such a big sum will eventually be spent on making a social scheme look more balanced?"

Even as the two main parties still wrangle over the final form of the much-needed reform plans, several social organizations in Germany have begun threatened large-scale protests including lodging a legal complaint with the courts if the government continues to defer raising pension payments.

Walter Hirrlinger, president of the VdK group, which represents senior citizens, said the ruling parties would be punished at the next polls if they failed to ensure pensioners got their rightful raise. "The pensioners will not forgive those politically responsible," he told the Berliner Zeitung.