German parties endorse deal

By James Mackenzie and Erik Kirschbaum

BERLIN/KARLSRUHE (Reuters) – Germany’s leading political
parties overwhelmingly approved their coalition deal on Monday,
removing the last major obstacle to a new bipartisan government
led by conservative Angela Merkel.

At separate party congresses, Merkel’s Christian Democrats
(CDU), their Bavarian sister party the Christian Social Union
(CSU) and their longtime rivals, the Social Democrats (SPD),
endorsed a pact creating Germany’s first “grand coalition”
since the 1960s. Some will remain skeptical it can hold
together.

“This is the starting point for a journey together with a
partner we have been locked in a deep struggle with for 40
years,” Merkel told CDU members in Berlin.

“The success of the grand coalition will be measured on
whether people are better off at the end of it,” she added.

After a month of tough talks, the three parties announced
on Friday they had sealed a coalition agreement, breaking
nearly two months of political deadlock which followed an
inconclusive September 18 election.

The deal foresees a sudden and dramatic consolidation of
the German budget in 2007, driven by a rise in sales tax, and
has drawn condemnation from industry, which fears the higher
taxes will hit German consumers.

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 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 did not stand in the way of the deal
on Monday, with only a small portion of delegates from the
three parties voting against or abstaining.

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

FRAGILE, UNWIELDY

She takes the reins of a potentially fragile, unwieldy
coalition that a majority of Germans believe will not last for
the full four year legislative term, according to a poll for
Der Spiegel magazine at the weekend.

“No one is forcing anyone to love this grand coalition or
to cheer about it,” outgoing Chancellor Gerhard Schroeder said
in the southwestern city of Karlsruhe.

But he urged party members, some of them with tears in
their eyes, to endorse the pact, saying it contained the
undeniable signature of the SPD and was Germany’s only chance
for a stable government.

The parties were forced into coalition talks after the
tight election left them with no other viable alternatives for
forming a stable government.

They were forced to strike a delicate balance on Monday,
backing a program that contains bitter pills for both camps,
while sending the signal to the party faithful that the forced
alliance would not dilute their distinct identities and values.

The balancing act occurred 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 some 35
billion euros in savings and new revenues — and the way the
parties will get there.

Much of the sum will come from a 3 percentage point rise in
value added tax in 2007 — a move some 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.

However Juergen Hambrecht, the chief executive of German
chemicals giant BASF, said on Monday that if the coalition pact
was quickly implemented, well communicated and executed, it
could help the economy.

“In principle, we welcome the fact that the coalition
agreement has been reached, even if excellence does not emerge
from compromises,” he said.

(Additional reporting by Patricia Gugau and Georgina
Prodhan in Frankfurt, Michael Able in Munich, Claudia Kade in
Berlin, Markus Krah and Guido Bohsem in Karlsruhe)