BERLIN (AP) — Germany’s governing parties and the main opposition bloc reached a compromise Tuesday that should allow an overhaul of the country’s unemployment benefit system — a central policy of Chancellor Olaf Scholz’s government — to go ahead in somewhat watered-down form.

The reform will replace a system drawn up nearly two decades ago by a center-left government under then-Chancellor Gerhard Schroeder, which tightened benefit rules for the long-term unemployed.

The so-called “Hartz IV” system was part of a package of reforms that was credited with helping make Europe’s biggest economy more robust. It has long been loathed by left-wingers and contributed to years of weakness for the center-left Social Democrats, the party of Schroeder and of Scholz, who now leads a three-party coalition.

The center-right opposition Union bloc objected to Scholz’s original plan on the grounds that it would have reduced pressure for people to take available jobs. Last week, regions where it governs blocked the overhaul in the upper house of parliament, which represents Germany’s 16 state governments.

The government’s proposal foresaw raising the level of benefits from 449 euros ($460) per month to 502 euros. The opposition backed that, but objected to plans to reduce penalties against recipients who balk at taking jobs — particularly in the first six months — and loosen restrictions on assets they can hold.

The compromise the two sides have now reached removes the six-month grace period in which there would have been no penalties, replacing it with a step-by-step model of increasing benefit cuts. It also reduces the level of personal assets that people receiving benefits initially wouldn’t be required to tap into, from 60,000 euros to 40,000 euros.

The plan is for parliament to approve the compromise by the end of this week so that the overhaul can take effect Jan. 1.