Merkel in coalition deal with arch rivals
Print Edition
Chancellor Angela Merkel clinched a coalition deal with the Social Democrats (SPD) yesterday that rolls back decade-old reforms of the German welfare state but preserves Berlin’s strict approach toward struggling European partners.
The agreement, spelled out in minute detail in a 185-page policy document entitled “Shaping Germany’s Future,” was struck two months after Merkel emerged victorious from an election but fell just short of a parliamentary majority.
The result forced her into negotiations with the arch-rival SPD, with whom she ruled in an awkward “grand coalition” during her first term from 2005-2009.
The SPD is still smarting from that experience, and its leadership has agreed to put the new deal to a vote of the party’s 474,000 card-carrying members, adding an element of uncertainty to Merkel’s goal of having a new government in place by Christmas.
“We entered negotiations with very different ideas, and that is why things took a little time,” Merkel told a news conference, sitting between SPD Chairman Sigmar Gabriel and Horst Seehofer, leader of the Bavarian Christian Social Union.
The deal was greeted with a sigh of relief by investors, who pushed the euro currency to a four-year high against the Japanese yen and a one-month peak versus the US dollar.
It was also welcomed by officials in Brussels and other European capitals. The lengthy talks have delayed movement on major European reforms, including progress on “banking union,” an ambitious project designed to prevent a recurrence of the eurozone’s debt crisis.
Merkel stood firm against SPD demands for tax hikes on the rich, but agreed to introduce a minimum hourly wage of 8.50 euros (US$11.5).
The SPD also secured concessions from Merkel on pensions and labour market rules, softening elements of the “Agenda 2010” reforms that had been introduced a decade ago.
Hopes in France and other eurozone states that the SPD might convince Merkel to adopt bolder measures to stimulate growth and tackle unemployment were dashed in an agreement that endorsed Merkel’s carrot-and-stick approach to the euro crisis.
The coalition deal ruled out all forms of debt mutualization and called for eurozone members to agree to binding reform contracts to boost competitiveness.
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