By Ray Furlong BBC correspondent in Berlin

Shavings float gently to the floor through the dusty afternoon sunlight.

Frank's carpentry business employs four people, and he also has two apprentices. But he says he'd take on more workers if Germany's notoriously rigid labour laws were relaxed.

Schroeder says reforming labour laws is essential

"The labour laws mean that although I may lay off an employee, I have to go on paying him for a certain time," says Frank.

"This affects my price calculation, so my customers pay more than they would otherwise have to."

But help may be at hand for small businessmen like Frank. At a special party congress at the weekend, Germany's governing Social Democrats approved wide-ranging economic reforms that include loosening job protection for employees.

The Chancellor, Gerhard Schroeder, swept aside opposition to the plans from the party left.

Some analysts describe the changes as revolutionary.

"It is the turn away from the traditional welfare state to a more, even neo-liberal welfare state," says Professor Peter Loesche, from Goettingen University.

The German economy gives brokers little to laugh about

As Mr Schroeder calls for a change of mentality, the continued opposition of the trade unions can't be discounted.

But their strength has diminished, and a far more serious factor now in determining the future of German reforms could be the opposition Christian Democrats.

Party leader Angela Merkel said the government was still on the wrong track.

"We can see this because we still haven't had the draft laws that we urgently need," she said.

"Not a single bill on the labour market. No law on merging social security and unemployment benefits. So just like before the congress, there's still great uncertainty."

And adding to Gerhard Schroeder's woes is the possible collapse of the red-green coalition in Germany's biggest state, North-Rhine Westphalia.