Merkel Set for Talks to Bridge Differences: Policy Guide

Photographer: Krisztian Bocsi/Bloomberg

In the campaign, Chancellor Angela Merkel railed against tax increases as “poison” for the economy, pointing to record revenue accumulated on the back of an export-led economy to argue that there’s no need to generate more. Close

In the campaign, Chancellor Angela Merkel railed against tax increases as “poison” for... Read More

Close
Open
Photographer: Krisztian Bocsi/Bloomberg

In the campaign, Chancellor Angela Merkel railed against tax increases as “poison” for the economy, pointing to record revenue accumulated on the back of an export-led economy to argue that there’s no need to generate more.

Chancellor Angela Merkel will meet with leaders of the opposition Social Democrats today in a bid to lay the ground for a new German government, 12 days after she won her party’s best election victory since 1990.

Merkel is due to join top officials from her Christian Democratic Union and their Bavarian sister party, the Christian Social Union, at 1 p.m. in Berlin to hold exploratory talks with the SPD on a possible coalition. Merkel’s bloc also meet Green party officials on Oct. 10, though leaders of the CDU/CSU have said they prefer to govern with the Social Democrats.

The haggling could last for months as the parties seek to bridge differences on taxes, the labor market, euro-crisis strategy, energy, childcare and rents. The SPD governed with Merkel in a so-called grand coalition from 2005 to 2009.

The SPD convened a mini-congress of about 200 delegates on Sept. 27 that approved exploratory discussions. A coalition agreement would need to be backed by a ballot of the SPD’s 470,000 members.

While the SPD could ratify any final deal at a Nov. 14-16 party meeting in Leipzig, its general secretary, Andrea Nahles, speculated this week that talks could run until December or January. The previous grand coalition wasn’t sworn in until 64 days after the election.

Below are a selection of the main policy issues separating Merkel’s bloc, the SPD and the Greens:

TAXES:

Possibly the most complex knot to untie, with the main parties at loggerheads on the issue.

The SPD, which campaigned on a platform of social justice, wants to raise taxes to address what it says is a growing wealth gap and generate revenue for education infrastructure.

The top income-tax rates are 42 percent for those earning from about 53,000 euros ($71,650) and 45 percent for those earning 250,000 euros or more.

The SPD wants the 42 percent rate to climb progressively for those earning 64,000 euros or more until 100,000 euros, at which point a rate of 49 percent would kick in. The party also wants to levy a wealth tax. The party says 5 percent of earners would pay more tax.

Under the Green party’s proposals, those making more than 80,000 euros would move to the 49 percent top rate, with a 45 percent rate kicking in from 60,000 euros. Those earning less would see tax cuts. The party also proposed a tax on private wealth of more than 1 million euros of 1.5 percent, limited to a decade. The 10 billion euros it calculated in revenue would be used to reduce the deficit.

In the campaign, Merkel railed against tax increases as “poison” for the economy, pointing to record revenue accumulated on the back of an export-led economy to argue that there’s no need to generate more. While signals emerged after the election that her bloc might recant its tax stance, the CDU and CSU leadership has since appeared united in rejecting any rise.

Merkel’s outgoing government also promoted a tax cut designed to alleviate “bracket creep,” the process by which inflation-tied wage increases are eroded by a heavier tax burden in higher brackets. The SPD-dominated upper house, or Bundesrat, blocked that plan, which would have cost as much as 3.7 billion euros, according to the DIW institute.

LABOR:

A central difference between the parties throughout the campaign has been how to address Germany’s low-wage sector by establishing rules for minimum pay. Germany is among seven European Union countries without a national minimum wage. The SPD wants to correct that with a nationwide minimum wage of 8.50 euros an hour. The Greens also support a national minimum wage, though one set by a commission comprising unions, employers and economists.

Merkel says it’s not the government’s place to set wages. Instead, the CDU/CSU favors an industry-by-industry approach that allows wages to be set by collective bargaining. Still, Merkel said on more than one occasion during the campaign that she’d “force” employers and unions to set branch-specific minimum wages.

Both main parties also want to address the proliferation of part-time and low-wage contracts. The SPD calls for more representation for part-time workers on works councils and supervisory boards. All parties have also vowed to protect German pensions.

EURO-AREA CRISIS:

The SPD’s losing chancellor candidate Peer Steinbrueck attacked Merkel for her reliance on austerity. He demanded that a higher premium be placed on economic stimulus. He advocated a “Marshall Plan” for southern Europe to funded from the proceeds of the planned financial-transaction tax. Merkel, buoyed by SPD and Green backing in parliamentary votes for her crisis stance, stood by her position that bailout assistance to indebted nations requires a commitment to reform measures and adherence to fiscal discipline.

The main parties differ on debt-pooling in the 17-member currency area. Merkel rejects it, saying that would open the path to “mediocrity” as more competitive nations are punished and indebted nations lose their incentive to reform. The SPD, while backing off its initial embrace of jointly issued euro bonds, says there’s no way around introducing some form of pooled debt. The SPD and Greens support a debt-redemption fund, at least in the medium term.

FINANCE:

The SPD and Greens both advocate stronger regulation of banks in Europe as well as a faster implementation of an EU-wide banking union. Merkel’s government has backed centralized supervision at the European Central Bank for systemically important banks, though has warned about the legal pitfalls of a bank-resolution mechanism and rejected a centralized deposit-insurance scheme.

Steinbrueck has accused Merkel of “dragging her feet” on banking union, though the SPD also rejects direct recapitalization of banks through the bailout fund, preferring instead that the industry pays for such funding itself.

Senior members of the SPD have signaled they will press for more rapid implementation of the financial-transaction tax as a priority.

The SPD and Greens also favor separating banks’ investment banking segments from commercial banking.

BUDGET:

All parties support reducing the deficit and stable public finances, embracing Germany’s constitutional debt brake, which mandates the federal government achieve structural balance by 2016, with the 16 states following from 2020. The position is a bedrock for the CDU and CSU. Merkel campaigned on her stewardship of the budget and the government’s projection of structural balance next year and surplus in 2015. The SPD also embraces fiscal discipline, but not at the risk of public investment. So too the Greens, who hold their tax hikes and wealth tax as the best path toward a balanced budget.

ENERGY:

All parties address the urgency of accelerating Germany’s shift toward renewable energy as the country plans to shut its nine remaining nuclear reactors by 2022, a project estimated at 550 billion euros known as the “Energiewende.” One of the most hot-button issues accompanying the process is rising electricity prices, particularly those tied to subsides for solar and wind power.

Merkel has pledged to rein in prices as a priority, preferring a more market-based approach as the country modifies its clean-energy subsidy law, the EEG.

The SPD wants to reduce taxes and fees that are added to power prices, mainly by scaling back the electricity tax. The party also promotes the creation of an Energy Ministry and a partly state-owned agency to steer power-grid modernization.

The Greens want a faster expansion of renewable-energy sources and the promotion of local renewable projects through private investment and municipal ownership of power generation. Tax exemptions for energy-intensive industries should be reduced to save consumers 4 billion euros, the Greens say.

The CDU/CSU says hydraulic fracturing, or fracking, could be permitted if environmental threats are ruled out, while the SPD supports a moratorium on the practice until technology is developed to eliminate dangerous chemicals. The Greens oppose fracking and want to exit coal-fired power generation by 2030.

HEALTH CARE:

While not at the forefront of policy differences during the campaign, Merkel’s bloc supports private healthcare plans and competition among statutory funds, as the current system is set up.

The SPD supports a “citizen’s insurance” that would divert Germans from private insurance plans and into a unified public system covering health-care and nursing care. The Greens also favor a “citizens’ insurance.”

CHILD CARE:

The SPD spent the campaign lobbing attacks at the controversial “Betreuungsgeld,” an allowance for parents who want to raise their children at home. Merkel’s government enacted the measure with strong support from the Bavarian CSU.

Steinbrueck repeatedly pledged to rescind the allowance as one of his first acts as chancellor and SPD leaders continue to take aim at it. They’d use the revenue instead to expand childcare.

RENT:

All parties during the campaign responded to rising rents, particularly in urban areas.

Merkel’s government passed legislation to limit rent increases in tight housing markets to 15 percent to 20 percent over three years.

Steinbrueck attacked the chancellor for appropriating an SPD issue. Both main parties propose capping rent increases at existing residences to 10 percent above the neighborhood average.

The Greens call for a similar measure, limiting increases on new leases as well as existing residences to 10 percent of the average in tight markets, while also curtailing raises based on apartment renovations.

IMMIGRATION:

A core SPD demand is to recognize dual citizenship, particularly for residents from immigrant backgrounds who were born in Germany, a measure that would impact Germany’s Turkish community.

The CDU/CSU adheres to a compromise law introduced in 2000 that requires native-born dual nationals to choose between German or foreign citizenship by their 23rd birthday.

WOMEN:

The SPD pledged to require publicly traded companies to have a 40 percent quota for women on management and supervisory boards to address gender disparity in German boardrooms. While Merkel has confronted pressure within the CDU to establish a quota, the party’s position to demand that industry set up a voluntary quota to address the problem was accompanied by a caveat that a binding quota of 30 percent will come into effect by 2020.

The SPD women’s group has gone further and said it wants half of all SPD government jobs including cabinet posts to be reserved for women.

FOREIGN POLICY:

The CDU/CSU, SPD and Greens have all accepted German involvement in military missions abroad under international auspices. The SPD views an EU foreign policy as a “power for peace,” while the Greens support military engagement as a last resort only if backed by the United Nations.

One difference is on Turkey. Merkel’s faction rejects EU membership for the country, preferring a “privileged partnership.” The SPD and Greens support membership if Turkey meets the criteria, especially with respect to civil rights.

VEGGIE DAY:

The Greens proposed a meat-free “veggie day” in schools and work cafeterias during the campaign. Merkel and CDU/CSU politicians pounced on the idea as a needless incursion into Germans’ dining rooms. The chancellor pilloried the proposal at almost every rally, often to wild cheers. The SPD stayed clear of the issue.

To contact the reporter on this story: Patrick Donahue in Berlin at pdonahue1@bloomberg.net

To contact the editor responsible for this story: James Hertling at jhertling@bloomberg.net

Press spacebar to pause and continue. Press esc to stop.

Bloomberg reserves the right to remove comments but is under no obligation to do so, or to explain individual moderation decisions.

Please enable JavaScript to view the comments powered by Disqus.