October 9, 2005

Schroeder, Merkel meet to resolve chancellor dispute

By Iain Rogers

BERLIN (Reuters) - Chancellor Gerhard Schroeder and
conservative leader Angela Merkel meet on Sunday to resolve a
bitter dispute over who should lead Germany and to lay the
foundations of a coalition government of their rival parties.

Three weeks after an election which gave neither Merkel's
Christian Democrats (CDU) nor Schroeder's Social Democrats
(SPD) enough votes to rule with their allies, political
analysts predict they will strike a deal vaulting Merkel into
the chancellery and giving the SPD key ministerial posts.

An agreement could be reached either late on Sunday night
or early on Monday, paving the way for serious coalition
negotiations which are likely to drag on into November.

"I believe that with goodwill on the part of all
participants we can get a solution and a result," Guenther
Oettinger, CDU premier in the state of Baden-Wuerttemberg, said
in a radio interview on Sunday.

The meeting, attended only by Schroeder, SPD Chairman Franz
Muentefering, Merkel and Edmund Stoiber, a Merkel ally and head
of the CDU's Bavarian sister party, the Christian Social Union
(CSU), is due to start at 1800 GMT in Berlin.

The CDU and SPD plan to present the details of any
agreement to their party leadership on Monday morning.

Merkel's conservatives won four more parliamentary seats
than the SPD in last month's election but Schroeder has refused
to step aside, plunging Germany into a political limbo that
economists say could do further damage to the ailing economy.

Germany's gross domestic product (GDP) is expected to grow
a mere one percent this year, the weakest in the European
Union. Unemployment hit a post-war high in February.


Financial markets have been watching the talks closely to
see how far Merkel, seen as a keen advocate of structural
change, will have to water down her reform agenda to appease
the SPD and secure the chancellorship.

If Merkel makes too many concessions it could delay or
scupper some of the changes Germany urgently needs to boost its
anemic growth rate, financial analysts say.

"Relative to Merkel's initial agenda, the likely reform
program of a grand coalition can only be disappointing," Bank
of America economist Holger Schmieding said in a research note.

"After a possible relief rally if Germany's four
negotiators indeed do a deal over the weekend, this can
constrain the upside for German assets and, more importantly,
for the German economy," he added.

Media reports citing unidentified CDU sources said on
Saturday that Merkel wants a deal under which she would be
chancellor, with the CDU sharing half the posts in a 16-member
cabinet with the SPD.

SPD and CDU spokesmen both declined to comment on Saturday
and noted that Merkel, Stoiber, Schroeder and Muentefering had
agreed not to reveal details of the talks before they end.

Bild am Sonntag newspaper reported on Sunday, without
citing any sources, that Schroeder could become foreign
minister and vice-chancellor in a Merkel-led cabinet.

The two sides have already sketched out areas where they
should be able to work together, including cutting Germany's
ballooning budget deficit and reforming the tangle of state and
federal powers that has crippled decision-making in the past.