German parties seal grand coalition deal to form government

GERMANY’S biggest political parties reached a deal last night to form a coalition government, sealing an accord that would make Angela Merkel the nation’s first woman chancellor.

Ms Merkel’s primary task will be reviving Germany’s economy while taming its huge budget deficit.

The deal still needs to be endorsed by her Christian Democratic Union, its Bavaria-only Christian Social Union sister party and the centre-left Social Democrats of outgoing Chancellor Gerhard Schroeder. The parties will convene on Monday to vote.

Approval by the parties would allow parliament to elect Ms Merkel chancellor on November 22.

“We want to make more of Germany and we, the two big parties, want with these policies to win back people’s trust in the ability of politicians... and show that we can do something for our country,” Ms Merkel said, visibly relieved and smiling.

The two sides were forced into talks on a so-called “grand coalition” - only the second in post-World War Two Germany - after the country’s September 18 election gave neither a majority to govern with their preferred smaller partners.

“It is an ideal coalition treaty,” Social Democratic lawmaker Wolfgang Thierse said.

The deal emerged after the parties reached a breakthrough on raising value-added tax to 19% from 16% in 2007 to shore up finances - a victory for the conservatives.

Yesterday, the conservatives fulfilled the Social Democrats’ demand for a higher income tax for top earners, conservative Juergen Ruettgers said.

He did not give details, but the Social Democrats had called for a new rate of 45% rather than the current top rate of 42%.

The extra revenue from the VAT raise likely would be earmarked for a reduction in payroll taxes, which Ms Merkel and employers say deters hiring, as well as to shore up the budget.

As well as putting the budget in order, the new government will have to find ways of boosting the chronically sluggish economy.

Another conservative, Peter Mueller, said the outgoing government’s four- year-old deal with industry to close down all Germany’s nuclear plants by about 2021 would stand. Conservatives had wanted safe plants to stay open longer, but Mr Mueller said “the existing rules will remain.”

The parties had already agreed to several planks for a joint platform, including a gradual raising of the retirement age to 67 from 65 and a commitment to close ties with the US.

However, they needed to compromise on points where the two sides were diametrically opposed before the election. Voters denied both a majority to govern with their preferred small partners.

Franz-Josef Jung, the Christian Democrat’s choice for new defence minister, said: “Yesterday we achieved a crucial breakthrough regarding savings and providing new impetus for the economy and work, which are completely necessary and important.”