Feb. 23 (Bloomberg) -- German Chancellor Gerhard Schroeder, slipping in opinion polls before a series of 14 elections that begins Sunday, is losing his party's backing for policies he says are needed to keep Europe's largest economy growing.

As many as 43,000 people quit Schroeder's Social Democratic Party last year, alienated by decisions that included cuts in jobless benefits, the imposition of fees for doctors' visits and an easing of restrictions on firing for small companies. Schroeder, 59, two weeks ago ceded the party chairman's post to Franz Muentefering, 64, its parliamentary leader.

``We are in complete disarray, thanks to the policies devised by Schroeder,'' said Heiko Maas, the Social Democrats' chief in Saarland, one of five states holding elections this year, in a telephone interview. ``We have lost the faith of our voters. We must stop hurting pensioners, the jobless and welfare recipients.''

The party will contest regional, local and European elections in the next seven months, starting Sunday in Hamburg. Support for the Social Democrats fell to 24 percent in a poll by Infratest-Dimap last week, the lowest since the Berlin-based company began its survey seven years ago. The opposition Christian Democratic Union scored 48 percent in the weekly poll of 1,000 people, which has a margin of error of 1.5 percentage points.

To stem the flow of voters from his party, known as the SPD, Schroeder is slowing the pace of change in the labor market and the welfare system, and concentrating on education and innovation. Two years before national elections, a survey by the polling company Forsa last week showed that two-thirds of Germans want a respite from last year's so-called structural reforms.

Truck-Toll Failure

Schroeder's efforts to promote Germany as a technology center were set back last week when the government scrapped plans for a satellite-based truck-toll system with DaimlerChrysler AG and Deutsche Telekom AG.

``It's nothing but a blow to our high-tech image,'' SPD Transport Minister Manfred Stolpe said last week when canceling the contract with Toll Collect GmbH, a Deutsche Telekom and DaimlerChrysler's venture with Cofiroute SA, a French toll company. ``We must redefine our ambitions.''

Should the SPD lose support in Sunday's election in Hamburg, which the party ruled for more than four decades after World War II, the chancellor may be forced to realign his 14-member cabinet, said Matthias Jung, an analyst at Mannheim-based FG Wahlen, one of Germany's five leading polling companies.

Hamburg a Bellwether

``Hamburg is a bit of a bellwether,'' said Jung. ``If the SPD fares badly, Schroeder will be forced to take action. A cabinet reshuffle would be the most obvious step -- appointing new staff proves readiness for action.''

A poll of 1,008 people Friday by FG Wahlen found that the CDU will win Hamburg outright for the first time since World War II, while Schroeder's SPD may have its worst-ever result in the country's second largest city.

The steps Schroeder has pushed through so far will take time to boost the economy. Reductions in jobless benefits won't be implemented until next year, and reductions in health-care spending have not yet prompted a majority of Germany's 350 insurers to lower contributions shared by companies and workers.

The economy shrank 0.1 percent last year, the first annual contraction since 1993. The number of people out of work, 4.26 million in January, is 170,000 higher than when Schroeder won office in October 1998.

Threat From Euro

The euro's 20 percent appreciation against the dollar in the past year threatens to curb German exports, and employment in export-oriented industries accounts for about one third of jobs. Consumer groups say the relief from tax cuts introduced this year is being absorbed by higher health-care costs and tobacco taxes, lower pension payouts and a reduction in tax benefits.

``How are those extra sales supposed to happen?'' asked Holger Wenzel, managing director of the HDE retailers' group representing 100,000 retailers, in an interview. ``Tax cuts here, higher welfare costs there -- people feel they're being taken to the cleaners.''

Schroeder took over the party's chairmanship almost five years ago, seeking to tighten his grip on the Social Democrats after Oskar Lafontaine stepped down from that position and as German finance minister. Relinquishing that post is acknowledgement that Schroeder failed to keep the party together, said Uwe Andersen, a professor of politics at the University of Bochum.

``It wasn't a love relationship from the start,'' Andersen said. ``Schroeder is a pragmatist, he never cared much about the party's soul. The divide was highly visible.''

`Bosses' Comrade'

Even before his election as chancellor, Schroeder was dubbed the ``bosses' comrade'' by party members, a reference to his liking for cigars and designer suits and his friendship with executives including Siemens AG's Heinrich von Pierer and the former Volkswagen AG chief executive, Ferdinand Piech.

``It's an admission of defeat,'' Andersen said. ``For the most part of his tenure, Schroeder has wooed big business, which has won him anything but friends among SPD members.''

Executives are now putting pressure on Schroeder to follow up on tax and welfare cuts with demands for a simpler tax system, immigration rules that help attract skilled foreign staff, a further overhaul of pension rules and an upgrade of research and education standards to boost Germany's economic potential.

``Last year's process of structural reforms has taken a heavy toll on Schroeder,'' Michael Rogowski, head of the BDI industry federation, said in an interview. The group represents 107,000 companies, including Siemens and Robert Bosch GmbH. ``He mustn't let up now: reforms mustn't stop or Germany will drop further behind.''

To contact the reporter on this story: Andreas Cremer in the Berlin bureau at acremer@bloomberg.net.

Last Updated: February 22, 2004 19:19 EST