CDU backs German coalition agreement

By Erik Kirschbaum and James Mackenzie

KARLSRUHE/BERLIN (Reuters) – Angela Merkel’s conservative
Christian Democrats (CDU) overwhelmingly approved a new
coalition deal on Monday that puts her at the top of a
potentially fragile and unwieldy bipartisan government.

If the Social Democrats (SPD) and the CDU’s Bavarian sister
party, the Christian Social Union (CSU), also endorse the deal
in separate congresses on Monday, Merkel is virtually assured
of becoming Germany’s first woman chancellor and first from the
former communist east.

After a month of negotiations, Merkel’s conservatives and
their longtime rivals, the SPD of outgoing Chancellor Gerhard
Schroeder, 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 Merkel gave the SPD too much in her quest to become
chancellor.

Although she 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.

The dissenting voices in the CDU did not stand in the way
of the deal, with just three of over 100 members voting against
and one abstaining.

The CSU and the SPD will vote at congresses in Munich and
the southwestern city of Karlsruhe, respectively, later on
Monday.

If they vote yes, Merkel must still be elected chancellor
in the Bundestag lower house of parliament on November 22, but
given the coalition partners’ overwhelming majority there, that
vote is expected to be a formality.

SCHROEDER URGES APPROVAL

Schroeder, who initially refused to concede defeat after
the SPD was narrowly edged by the conservatives in a September
18 election, took to the podium in Karlsruhe to urge his party
to approve the deal.

“No one is forcing anyone to love this grand coalition or
to cheer about it,” Schroeder said.

But he told party members, some of them with tears in their
eyes, that the agreement contained the undeniable signature of
the SPD and was Germany’s only chance for a stable government.

“I urge you therefore to give your broad approval.”

Party leaders, who were forced into coalition talks after
the tight election left them with no other viable alternatives
for forming a stable government, are walking a fine line in
pushing 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.

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.