German Election Parties Forge Deal on Grand Coalition
As the sun set in Berlin on Friday, the Christian Democrats hammered out the final details of a coalition contract with the center-left Social Democratic Party (SPD) on Friday for what should serve as the basis for a government to rule Germany over the next four years. The two sides were able to put aside differences on several contentious issues including tax hikes and labor market reforms.
With the bipartisan grand coalition a political marriage of necessity rather than conviction, there was a little something for both sides in the deal.
The conservatives pushed through an increase in Germany's value-added tax (VAT sales tax), but were forced to agree to raise the tax rate on the rich in return. The Christian Democratic Union (CDU), along with its Bavarian sister party, the Christian Social Union (CSU), wants to use part of the added revenue from the VAT, which will rise from 16 to 19 percent in 2007, to lower the country's non-wage labor costs with the aim of encouraging job growth.
However, since a consumption tax like the VAT hits the less fortunate proportionally more than the wealthy, the Social Democrats fought for a new tax on the rich. The highest income tax rate will rise from 42 to 45 percent for all those earning more than €250,000. For married couples the limit will be €500,000.
"We want to make more of Germany and we, the two big parties, want with these policies to win back people's trust in the ability of politicians," Merkel told reporters, "and show that we can do something for our country."
Wolfgang Thierse, an SPD negotiator and former Bundestag president, described the coalition contract as "ideal." Pointing out the number of balancing concessions the parties were forced to make, he added: "Both sides come out of it well, both sides come out poorly."
Labor market reforms
The CDU was successful in its demand to make it easier for businesses to fire people, a measure it believes will make the job market more flexible and encourage investment and hiring. In the future, new hires will face a two year "probationary period" during which employers can dismiss workers easily. Until now, that period has been just six months in most cases.
In an effort to help deal with Germany's rapidly aging population, contributions to the state pension system will rise in 2007 to 19.8 percent from 19.5 percent of gross wages. There was no change to the planned phaseout of nuclear power stations by 2021 -- a policy approved by the outgoing coalition government of the SPD and the Greens.
The parties are expected to sign off on the coalition agreement at conferences on Monday. The way would then be clear for Merkel to be voted in as the first woman and first person from Germany's formerly communist east to lead the country in a parliamentary vote on Nov. 22. It took nearly eight weeks to form a government after Germany's Sept. 18 general election.
