German Chancellor Angela Merkel agreed to a national minimum wage and to increased spending on pensions and infrastructure while holding firm to her refusal to raise taxes in a coalition accord with the Social Democrats.
The blueprint for Merkel’s third term commits the “grand coalition” to opposing debt sharing in the euro area and pledging additional domestic spending of at least 20 billion euros ($27 billion) in a concession to the SPD. The euro rose to a four-year high against the yen after the deal was announced.
“The tone and the spirit of this agreement is that this is a grand coalition to take on the grand challenges facing Germany,” Merkel, 59, told reporters in Berlin today. “We went into the negotiations with very different ideas. That’s why it took a while.”
Attention now shifts to a ballot of the SPD’s 470,000 members on the coalition accord. The mail-in vote, which will take about two weeks until it is tallied on Dec. 14-15, carries “significant uncertainty,” Ebrahim Rahbari, a London-based economist at Citigroup Inc., said in a note. If SPD members vote in favor, Merkel will be sworn in on Dec. 17 or Dec. 18. A “No” vote could lead to elections in the spring.
The coalition deal is “very good,” SPD Chairman Sigmar Gabriel, the probable next vice chancellor, said alongside Merkel, urging his party’s members to back it. “We will get a broad majority for the coalition pact,” Gabriel said. “I’m quite sure of that.”
Germany’s benchmark DAX stock index rose 0.25 percent and the euro advanced 0.2 percent against the dollar to $1.3595 as of 1:03 p.m. in Berlin. German 10-year bonds slipped, sending the yield up 1 basis point to 1.7 percent.
Merkel, 59, defeated SPD Chancellor Gerhard Schroeder in 2005 to become Germany’s first woman leader and its first from the former communist east. After four years of grand coalition, the SPD suffered its worst electoral result since World War II and Merkel the allied with the Free Democratic Party. The FDP failed to win any seats in this year’s vote.
A complete third term would give her 12 years at the helm, exceeding the 11 1/2 years of former British Prime Minister Margaret Thatcher. Helmut Kohl, who gave Merkel her first cabinet post in 1991, was chancellor for 16 years.
The accord was reached in the early hours today, more than two months after Merkel’s Christian Democratic bloc won the biggest electoral victory since German reunification in 1990. It ends the longest period of coalition talks of her time in office to date, underscoring the difficulty the traditional rivals had in conceding policies to the other.
The deal setting out Merkel’s agenda at the helm of Europe’s biggest economy contains a call to introduce a tax on financial transactions including currency trades and derivatives contracts, tighter German rent-control laws, reduced subsidies for wind power and a commitment to pass a law to impose a toll on highways aimed at foreign drivers that won’t raise costs for domestic car owners.
Merkel will stick to the European policies she followed during the sovereign debt crisis including a rejection of joint liability for euro nations’ debt. The coalition contract also signals support for the European Commission to proceed with plans for a European Union-wide rule separating commercial and investment business at banks.
The minimum wage, to be introduced in 2015, was set at 8.50 euros an hour. Pensions will benefit from an injection of 2 billion euros and infrastructure by 5 billion euros. It includes a commitment to pursue a structurally balanced budget from next year and to have no new deficit spending from 2015.
“No new debt and no tax increases,” Hermann Groehe, the general secretary of Merkel’s Christian Democratic Union, told reporters as he emerged from the talks, referring to Merkel’s two red lines in the negotiations. “I would say that we can say ‘yes’ to this,” said Andrea Nahles, his SPD counterpart.
The SPD had proposed policy demands amounting to more than 45 billion euros and whittling that down “was a tedious but effective process,” Julia Kloeckner, a member of the CDU’s national executive who took part in the negotiations, said on ZDF television. The SPD put the total spending at about 23 billion euros over the next four years, while the CSU said it was about 20 billion euros.
“This coalition agreement is a bet on a further positive development of the German economy and positive tax revenue in order to finance this,” Carsten Nickel, an analyst with Teneo Intelligence, said in a Bloomberg Television interview. “This is not something that could be labelled as Germany rebalancing its economy.”
Merkel said that while the matter of cabinet posts had been discussed, ministers won’t be named until a later date. Gabriel said posts will only be announced after the SPD membership ballot has been counted.
Finance Minister Wolfgang Schaeuble is vying to stay on in his position. Germany’s new foreign minister will probably be Frank-Walter Steinmeier, who held the post from 2005 to 2009 during Merkel’s first-term grand coalition; Gabriel may take the Economy Ministry, assuming responsibility for energy policy.
The CDU and its Bavarian affiliate, the Christian Social Union, took a combined 41.5 percent to the SPD’s 25.7 percent in the Sept. 22 federal election, the biggest margin since reunification and a victory attributed in part to Merkel’s leadership in the debt crisis that dominated her second term.
German economic growth will accelerate to 1.6 percent next year, the government’s Council of Economic Experts said Nov. 13. That would help balance the budget and cut the unemployment rate to 6.8 percent, the lowest since reunification, according to the council.
“It looks as if the new government’s focus is on redistributing the harvest of earlier economic reforms, rather than using the economic good times for new structural reforms, increasing the economy’s potential growth rate,” said Carsten Brzeski, an economist at ING Group NV in Brussels.
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