German upper house blocks landmark welfare reform

BERLIN, Nov 14 (Reuters) - 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.

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.

The welfare reform would introduce Buergergeld, or "citizens' money", to replace the Hartz IV system brought in from 2005, which sanctions people who reject job offers.

Conservatives in the Bundesrat upper house blocked the reform, 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.

"Our welfare state can only function if there are duties as well as rights," Baden-Wuerttemberg labour minister Nicole Hoffmeister-Kraut of the opposition conservative CDU party said.

Florian Herrmann, Bavaria's labour minister of the CDU's sister party CSU, echoed her comments, saying the reform risked sending a signal that it was becoming less and less worthwhile to work.

The measure passed the lower house last week. German Labour Minister Hubertus Heil said the ruling coalition -- of his Social Democrat (SPD) party with the Greens and the liberal FDP -- would call on a mediation committee later on Monday.

The goal is to reach a compromise by the end of next week that the two chambers can vote on again to allow the measures to come into effect on Jan. 1.

Heil said the aim of the reform was to protect those in existential need and provide opportunities to find jobs through better qualification and further training.

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.

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.

Reporting by Holger Hansen; Writing by Paul Carrel; editing by Rachel More, Kirsten Donovan

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