Germany faces future of rocks and hard places

Members of Germany’s leading parties were expected today to approve the 143-page agreement that would see a left-right coalition take power, with Angela Merkel as the country’s first woman chancellor.

Members of Germany’s leading parties were expected today to approve the 143-page agreement that would see a left-right coalition take power, with Angela Merkel as the country’s first woman chancellor.

Leaders from the Social Democrats and lawmakers from Merkel’s Christian Democrats and their sister party, the Bavaria-only Christian Social Union, both overwhelmingly approved the document yesterday.

It will be put before party congresses later today.

“I think this is an exceptionally good result, and it shows that we want to enter a new government as a reliable partner,” Merkel said after the conservative parliamentary faction’s vote – the first hurdle in getting it past her party.

Members of outgoing Chancellor Gerhard Schroeder’s Social Democrats were meeting in the south-western city of Karlsruhe, not only to vote on the deal, but also to approve new party leaders and outgoing head Franz Muentefering’s participation in the new government. Muentefering is to be labour minister and deputy chancellor.

Social Democratic party head Kurt Beck said he saw no reason why today’s party congress vote would not be equally approving.

“There are no known groups that have said they will vote against it,” said Beck, who is also governor of Rhineland-Palatinate state.

If all parties pass the agreement today, parliament will formally elect Merkel on November 22.

Entitled Together for Germany – with courage and humanity, the coalition deal is the product of nearly two months of tough negotiations between the Social Democrats and the conservatives.

After a September 18 parliamentary election denied both Merkel’s party and the Social Democrats a clear majority, they were forced to work together in a so-called ’grand coalition.’ As part of the deal, each side holds eight of 16 Cabinet posts, and the agreement includes policies from each camp’s election platform.

As such, the Social Democrats agreed to an increase in value-added tax to 19% in 2007, from 16% today – holding off conservatives’ wishes to hike the tax next year. The increased VAT will partly be used to cut a payroll levy for unemployment insurance, but also partly to help plug a gaping budget shortfall of €35bn.

“We were able to get through 2006 without increasing the value-added tax, so we are doing that,” Muentefering told the Badische Neueste Nachrichten in its today edition.

But without increasing it the following year, there was no way for Germany to meet its budget requirements, he said.

For their part, the conservatives were forced to swallow a tax increase for high earners, wanted by the Social Democrats. That will mean a new top tax rate of 45%, compared with the current 42%, also going into effect in 2007.

Friedrich Merz, a financial expert and former parliamentary leader for the Christian Democrats, said yesterday that his party gave too much to its former rivals in order to make the coalition work.

“I simply don’t see any mark of the conservatives,” Merz told the Frankfurter Allgemeine Sonntagszeitung weekly. ”Tax policies have never been more clearly Social Democrat.”

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