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German parties agree on "grand coalition"

Luke Harding

Left-wingers angry over trade-off over tax rises

— PHOTO: AP

COBBLING TOGETHER A COALITION: German Chancellor-designate Angela Merkel (second left) of the Christian Democrats, chairman of the party Franz Muentefering (second right), chairman of the Christian Social Union Edmund Stoiber (left), and designated chairman of the Social Democrats Matthias Platzeck, brief the media on the completed coalition talks in Berlin on Friday.

Berlin: Germany moved into a new political era on Friday night as the country's two biggest parties reached a historic deal to form a Left-Right ``grand coalition''. Angela Merkel's conservatives and the Social Democrats emerged from negotiations with a 130-page coalition agreement that would form the basis of Germany's new bipartisan government.

The deal appears to end almost two months of political crisis in Germany, Europe's biggest economy, and ensures that Ms. Merkel will become the country's first woman Chancellor.

But there was criticism of the coalition's plans, especially over tax. Trade unions, pensioners' groups and business leaders condemned the coalition's apparent decision to increase VAT from 16 per cent to 19 per cent — one of a series of austerity measures designed to plug the Euros 35-billion hole in public finances.

``We told people during the election campaign that we would not put up VAT. We are now doing the opposite,'' said Bernd Becker, a political scientist and SPD activist. ``It's a betrayal and it's wrong. As an SPD party member I am really disappointed.''

Commitments

``This is poison for the economy,'' Dieter Hundt, president of Germany's employers' association, told Die Welt newspaper. The new Government had made a ``100 per cent false start'', he said. Ms. Merkel's Christian Democrats (CDU) and Gerhard Schroeder's Social Democrats both failed to win September's general election — forcing their parties to begin negotiations three weeks ago over the first grand coalition since the 1960s.

Both parties have been forced to dump many manifesto commitments. Leaks from the talks suggest the SPD has abandoned its opposition to a VAT increase — supporting a rise from January 1, 2007. In return, the party has demanded a new tax on the rich — something the CDU has resisted. Other areas to cause disagreement include reforms to the labour market and atomic energy.

The negotiations have been complicated by an internal SPD power struggle — which saw the party's chairman, Franz Muntefering, resign and replaced by Matthias Platzeck (51), an east German whose biography is similar to Ms. Merkel's. However, Friday night's negotiators said a deal was "99 per cent complete''.

Grassroots party members are expected to back the binding coalition ``contract'' despite grumblings by many within the SPD. Ms. Merkel will then replace Mr. Schroeder as Chancellor on November 22.

On Friday, opinions were divided on whether the coalition would be able to steer Germany out of its economic mess or agree on crucial reforms on tax, pensions and social security.

``The criticism so far has not been justified,'' said Dr. Gustav Horn, director of Berlin's Institute for Macro-Economic Policy. ``What we have in Germany is a deep crisis of confidence in the political process. Politicians have done everything they can to justify this mistrust. But I see slightly better times ahead.''

- Guardian Newspapers Limited 2005

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