After five days of grueling negotiations culminating in a 24-hour marathon of talks, Angela Merkel’s conservatives have reached a preliminary agreement with the center-left Social Democrats to begin formal negotiations to form a new government. The breakthrough would continue Germany's "grand coalition" and end months of uncertainty and deadlock in the euro-zone’s largest economy.
The coalition party leaders — Ms. Merkel of the Christian Democratic Union (CDU), Horst Seehofer of the CDU’s Bavarian sister party, the Christian Social Union, and the Martin Schulz of the Social Democratic Party (SPD) — hammered out a blueprint for more formal coalition talks on Friday morning. Now the plans will be presented to party members.
Many SPD members, however, remained opposed to another four years of ruling as a junior party in a Merkel government and could still vote “nein” at their party conference on January 21. A no would likely lead to new elections and could end Ms. Merkel’s attempt for a fourth term.
“It was clear to us from the beginning that it wouldn’t be easy to carry out these exploratory talks,” said Mr. Schulz, who initially rejected the idea of a renewed coalition partnership with Merkel's conservatives after the September 24 election. “I think we produced excellent results.” Ms. Merkel said she was “optimistic” about the possibility of forming a new coalition government with the Social Democrats.
I think we produced excellent results. Martin Schulz, SPD Chairman
The German parties’ turtle pace in setting up a new government has been testing the patience of voters who gave Ms. Merkel’s conservative bloc the most votes in fall election. Since the collapse of exploratory talks between the CDU, the Free Democrats and the Greens, the 63-year-old leader has been serving as an acting chancellor, with most policymaking on hold.
Now, the 28-page draft policy document, seen by Handelsblatt, shows compromises made on both sides, but Ms. Merkel may have gotten more items from her wish list than Mr. Schulz. The two sides agreed to keep the top tax rate at 42 percent rather than raising it to 45 percent as the Social Democrats wanted. The number of asylum seekers should not exceed 220,000 per year, a cap opposed by the SPD but demanded by the CSU. And another cap was pushed through by Ms. Merkel: The number of migrant family members allowed to join asylum seekers in Germany for humanitarian reasons should be limited to 1,000 per year. Nor was there any mention of one of the SPD's key ambitions — to introduce universal health care with no private alternative.
The chancellor stressed the need for a “new awakening” for Europe, saying she was confident a new German government would reach an agreement with France on the future of the European Union. "Only if Europe does well will Germany do well," she said.
French President Emmanuel Macron is pushing an ambitious European reform agenda, calling for enhanced cooperation and harmonization on the economy, immigration and defense, as well as the environment, security and terrorism and taxes. He's echoing what EU Commission President Jean-Claude Juncker has been preaching to member states repeatedly throughout his term. "In terms of the substance, I'm very happy with what the CDU/CSU and the SPD have agreed," Mr. Juncker said on Friday at a news conference in Sofia. "It is a significant, positive, forward-looking contribution to European policy debate in Europe."
Germany, the economic power house of Europe, is crucial to the region’s fortunes. Berlin’s partners are eagerly awaiting a new government to help drive forward Brexit talks, euro-zone reform and many of Mr. Macron's proposals.
Draft elements also included boosting education, housing and construction of high-speed internet networks, allowing skilled labor immigration and making changes to health insurance. This will cost money — some €1.4 trillion between 2018 and 20121, according to the paper. The new government will have nearly €45 billion available in surplus funds to spend on these and other programs. But some tax relief is also planned: The so-called solidarity tax, established to help rebuild the former East Germany, should be reduced by €10 billion in steps by 2021.
The paper called for phasing out coal-fired power generation by the end of the decade and reaching its pledged climate goals by 2030. Ahead of the agreement, it was leaked that the parties agreed to drop earlier plans to lower carbon dioxide emissions by 40 percent from 1990 levels by 2020. They also agreed to reduce the use of the controversial weedkiller glyphosate.
The accord quickly drew some criticism. Mario Ohoven, the German president of the European association of medium-sized businesses, said a renewal of the grand coalition "will be costly for Germany." Eric Schweitzer, president of the Association of German Chambers of Industry and Commerce said "the price of the compromises for business is high." Economic research institute head Ifo Clemens Fuest said: "This government program brings a lasting expansion of the state's share of economic output, ie higher taxes and more public benefits. In addition, the tax progression increases so it will be more redistributed. In this respect, the SPD has largely prevailed."
And some Social Democrats are already venting their anger over the compromises ahead their opportunity to vote on them. "How shabby can a party be?" asked SPD parliamentarian Frank Schwabe. He is just one of many party members concerned that more collaboration with Ms. Merkel could further erode the influence of the SPD, which suffered its worst result since World War II in the September election.
John Blau is a senior editor with Handelsblatt Global. To contact the author: [email protected]