German parties seen approving new coalition deal

By Erik Kirschbaum and James Mackenzie

KARLSRUHE/BERLIN (Reuters) – Germany’s Conservatives and
Social Democrats said they were confident a coalition deal
would be endorsed at party congresses on Monday despite rising
criticism the agreement is bad for the economy.

After a month of negotiations, the longtime political
rivals announced on Friday they had sealed a pact which
foresees a sudden and dramatic consolidation of the German
budget in 2007, driven by a rise in sales tax.

The deal has drawn condemnation from industry, which fears
the higher taxes will hit German consumers, and from the new
opposition parties, who are painting it as a betrayal of the
promises the ruling partners made during the election campaign.

Gripes have also come from within the ranks of the
coalition parties themselves, particularly conservatives who
feel their leader Angela Merkel gave the SPD too much in her
quest to become chancellor.

Although Merkel did exact some modest concessions to loosen
job protection measures and cut payroll costs — moves she says
are key to encourage German firms to hire — her party has had
to swallow a rise in taxes for top earners and had to abandon
its hopes for a shake-up of rules governing wage negotiations.

“We reject this coalition deal,” said Josef Schlarmann, who
heads an association within Merkel’s conservatives that
represents small and medium-sized businesses.

Still, the dissenting voices are not expected to stand in
the way of the deal being approved at meetings on Monday of the
Christian Democrats (CDU) in Berlin, the Bavaria-based
Christian Social Union (CSU) in Munich and the SPD in
Karlsruhe.

“I hope, I am quite confident that we will get approval for
the coalition agreement from all three parties,” Ronald
Pofalla, deputy head of the conservatives in parliament and a
close ally of Merkel, told German public television on Monday
morning.

Sigmar Gabriel, an SPD politician who is due to become
environment minister in the new government, said he was not
nervous about the votes.

“I think there will be broad support because it’s clear to
everyone that Germany has a few problems that we can only solve
together,” he said, also speaking on public television.

FINE LINE

Party leaders, who were forced into coalition talks after a
surprisingly tight September 18 election left them with no
other viable alternatives for forming a stable government, will
have to walk a fine line at the congresses and when governing
together in Germany’s first “grand coalition” since the 1960s.

They must appear united behind a program that contains
bitter pills for both camps, while simultaneously sending the
signal to the party faithful that the forced alliance will not
compromise their distinct political identities and values.

The delicate balancing act is occurring against a backdrop
of withering criticism in the German media, which is watching
closely for signs of cracks in the coalition’s facade of unity.

“Everyone must pay for this grand coalition,” top-selling
daily Bild blared on its front page on Monday. “Only the
politicians won’t have to give anything up.”

The criticism is focused on bipartisan agreement to bring
Germany’s budget deficit back within European Union borrowing
limits by 2007 — a colossal challenge requiring upwards of 35
billion euros in savings or extra revenues — and the means of
getting there.

Much of the sum will come from a 3 percentage point rise in
value added tax in 2007 — a move some economists fear could
hit weak German consumption and make it tough for the coalition
to achieve its chief goal of cutting unemployment, currently at
11.6 percent.