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German parties seen approving new coalition deal

Posted on: Monday, 14 November 2005, 06:30 CST

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.

Source: REUTERS

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