(Refiles to fix links. No change in text)

By Madeline Chambers

BERLIN, Aug 24 (Reuters) - German Chancellor Angela Merkel pledged on Friday to fight climate change and tackle the skills shortage in Europe's biggest economy in the second half of her government's term, but crtics said her plan lacked ambition.

"We have set a clear goal -- we want to strengthen the foundations of the economic recovery," Merkel told a news conference after a two-day meeting between her conservative Christian Democrats and their Social Democrat ruling partners.

"We want to make the upturn last and to make sure all citizens can be part of it."

Merkel herself is enjoying the strongest mid-term approval ratings of any German chancellor, helped by a robust economy and the profile she developed during her presidencies of the European Union and Group of Eight industrialised nations.

But with several state elections looming next year ahead of a 2009 national poll, the coalition parties, which disagree on a number of major policies, chose to compromise over setting ambitious but unachievable goals, analysts said.

In its first two years, Merkel's government agreed to raise the retirement age, cut corporate taxes and revamp the health system in much-criticised reforms.

But it is dropping issues it cannot agree on, such as further labour market reforms, including a general minimum wage, and an overhaul of nursing care insurance.

"The cabinet meeting has delivered no political substance," said Dirk Niebel, General-Seretary of the opposition FDP.

"Compromises on the lowest common denominator remain the hallmark of the coalition and there is no sign of change."

CLIMATE AND ECONOMY

The centrepiece of the cabinet's plans is a list of energy saving measures to fight climate change which will help reduce CO2 emissions by 36 percent by 2020 compared with 1990 levels.

"For the first time in the history of modern Germany, we have moved beyond defining goals towards agreeing on concrete steps on climate change," Environment Minister Sigmar Gabriel told German television.

Although it will take up to a year to pass the new laws, Germany wants to set the tone for the global climate debate ahead of a U.N. meeting in Bali in December which will try to launch new talks for the Kyoto Protocol beyond 2012.

The cabinet also agreed on steps to boost training among young people and to open Germany's doors to engineers from eastern Europe earlier than planned to help compensate for a shortage of skilled workers.

The government particulary wants to encourage mechanical and electrical engineers because companies are suffering from the shortages which some economists say could affect the recovery.

Ministers also discussed ways of protecting firms from being taken over by state-owned foreign funds from China and Russia.

Options include forcing foreign firms who want to buy stakes to report their intentions, setting up a fund to hold assets in domestic firms and widening the scope of a law which defines only the defence industry as "strategic".

For a factbox on policies agreed, please click on [ID:nL241884]

For a factbox on climate change, please click on [ID:nL24787177]

(Berlin Newsroom, +49 30 2888 5230, madeline.chambers@reuters.com)

AlertNet news is provided by