Not everyone is as happy with reform as Mr Schroeder

Hans Eichel told the Deutschlandfunk radio station on Sunday that three years of slow growth had led to the problem.

With the situation so grave, no option could be excluded to fill the gap, he said, adding: "There must be no taboos."

Recent figures showed that Germany's economy shrank slightly in the first three months of 2003, as exports weakened in the face of a strong euro and unemployment stayed stubbornly above 4 million.

Tax revenues are also sharply down by 8.7bn euros year on year, Mr Eichel said, as he blamed the continuing high cost of 1990's reunification of East and West Germany for some of the country's woes.

Opposition

Mr Eichel's admission comes as Chancellor Gerhard Schroeder faces a tough fight to push through painful economic reforms which would reduce unemployment benefits and pensions and make it easier for employers to fire workers.

Thousands of opponents of the package, which Mr Schroeder calls "Agenda 2010", marched through towns across Germany on Saturday in protest, holding banners saying "Yes to reform, no to social regression".

Michael Sommer, head of Germany's biggest trade union federation DBG, told a march in the northern industrial city of Hanover that he was not opposed to the government; he simply wanted it to start acting like a Social Democrat-Green coalition.