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When Gerhard Schröder was first elected German Chancellor in 1998, 3.8 million Germans were out of work. "If we do not considerably lower the unemployment rate, we do not deserve to be re-elected," Schröder said at the time. Seven years later, there are 5.2 million unemployed and Schröder is terrified that voters will take him literally. Last week, the Chancellor unveiled a plan aimed at jump-starting the economy, and met with the leaders of the conservative opposition in a much ballyhooed "jobs summit." But like so many attempted German reforms of recent years, the plan seems likely to get diluted by political haggling and could end up doing little to create jobs.

The jobs summit achieved only a minimum of agreement on Germany's economic future, and much of Schröder's package seemed like tinkering. He offered new tax breaks to small- and medium-sized companies, and proposed rules that would let the unemployed take jobs while retaining some of their benefits. He also said he'll spend €2 billion over the next four years on infrastructure projects like autobahns and railways. But there is one plank of Schröder's platform that is new: he's proposed cutting Germany's corporate tax rate, one of Europe's highest, from 25% to 19%. That's a major reversal for the Chancellor, who's spent the past year accusing new E.U. members from Central and Eastern Europe, where low corporate rates are the rule, of "tax dumping." The cut will make Germany's effective tax rate lower than those of France, Italy and Spain, but still higher than rates in most of the 10 new E.U. countries. And it seems likely to happen: Angela Merkel, leader of the opposition Christian Democratic Union (cdu), said her party would support the reduction as long as it involved no new borrowing.

Business leaders were pleased, with the stock market reacting modestly; the DAX index was up 0.42% at week's end. "It's a step in the right direction," says Dirk Schumacher, an economist at Goldman Sachs in Frankfurt. "Corporate taxes had to come down, given that countries around us are much lower." But he added that there's no guarantee that companies will use their tax windfall to invest in Germany.

Even if Schröder's measures get through the legislature — which is far from certain — they seem unlikely to create millions of jobs. "Given the magnitude of the problem of unemployment, they don't really address that particularly well," says Dennis J. Snower, president of the Kiel Institute for World Economics. He's particularly critical of the €2 billion earmarked for transport infrastructure. "Trying to improve the working of the economy by choosing a sector like that hasn't worked in most countries," Snower says. But there were some supporters, including Jürgen R. Thumann, president of the Federal Association of German Industry: "I'm very satisfied with the results. It's another step, even though reform policy is certainly not at an end."

The problem is that fixing taxes and fixing roads won't address the deeper reasons German companies don't hire more. Thomas Mayer, an economist at Deutsche Bank, ticks off a list of the genuine job barriers: labor laws that prevent firing and discourage hiring; high payroll taxes that make labor expensive; and the practice of setting wages nationally rather than at the company level. Germany's trade unions have staunchly resisted efforts to rewrite labor laws on these matters. Schröder's refusal to address these structural problems, says Mayer, "shows that the government is not capable of taking on the unions."

And therein lies Schröder's bind. According to the Forsa polling institute, the approval rating for Schröder's Social Democratic Party (spd) has fallen to a dismal 31% from 35% since January, while the cdu's has increased from 37% to 44% over the same period. With national elections 18 months away, the spd are worried that the sputtering economy could stall the re-election campaign before it starts. Schröder can't afford to alienate his union base, and he can't push through more reforms alone — the opposition controls the upper house of parliament. Yet if Schröder doesn't solve the unemployment problem soon, he's the one who may find himself out of a job.

• CHARLES P. WALLACE | Berlin
• Gerhard Schröder plans to cut Germany's corporate taxes, but it may not be enough to create new jobs