Schröder's Pro-immigration Law Overruled

The hard-pressed chancellor of Germany, Gerhard Schröder, suffered another setback yesterday when the constitutional court threw out a law that is at the heart of his government's efforts to turn around the economy.

The country's top judges upheld a complaint from the conservative opposition about the way in which Mr Schröder's followers steam-rollered a new immigration law through parliament last March.

The affair has shown the fragility of his centre-left government which, despite its victory in last September's general election, has no clear majority in the Bundesrat, or upper house.

The law would have opened Germany up to immigration for the first time since the 1970s, when it stopped taking in "guest workers" from Turkey and other Mediterranean states. The government maintains that foreigners are essential to plug skills gaps in the labour force and correct the effects of an ageing population - notably a rising imbalance between those contributing to, and benefiting from, its pension system.

The interior minister, Otto Schily, vowed yesterday to table a new bill in January and said he was ready to negotiate with the conservatives. But he added: "I can't disguise [the fact] that this is a very difficult situation."

The law thrown out yesterday had already been watered down in an attempt to agree a bipartisan approach. The amended bill made some aspects of Germany's stringent asylum laws even tighter.

It also placed a new and controversial emphasis on integration. The new law would have required immigrants to take language courses and instruction in the law, culture and society of Germany.

The danger for Mr Schröder's Social Democrats is that further watering down will open a rift with the Greens, the junior partners in the governing coalition and the chief proponents of immigration reform. The alliance is already under strain because of differences over Iraq.

Employers' representatives had lobbied hard for reform. But the Christian Democrat opposition has long maintained that the answers to Germany's problems lie in retraining programmes, school reforms and tax breaks to promote bigger families.

The act declared unconstitutional yesterday would have allowed foreigners in if they could show there was a job waiting for them. The right wanted a ceiling to be set.

With one in 10 German workers out of a job, the issue is highly charged. When the bill reached the Bundesrat earlier this year it prompted a rare storm in a chamber renowned for its sedateness.

Rightwing members roared in anger after the Social Democrat speaker accepted the crucial block vote of the state of Brandenburg, despite the fact that the members of its delegation had been unable to agree a common position, thus approving the legislation.

The constitutional court said it had decided by a majority of six to two that the speaker had acted in violation of the constitution. Divided delegations normally abstain.

The head of the employers federation, Dieter Hundt, urged the politicians to agree a compromise so that firms could bring in workers from abroad. At present the grey economy is growing rapidly: half the construction workers transforming Berlin are thought to be off the books and the vast majority of them are foreign.