Sept. 30 (Bloomberg) -- German Chancellor Angela Merkel’s party said it will hold exploratory talks with the Social Democrats at the end of the week as each side dug in for the prospect of months of negotiations to form a government.
As the threat of renewed crisis in the euro area emanating from Italy raised pressure for an agreement, senior members of Merkel’s Christian Democratic Union meeting in Berlin today announced that talks would be convened at 1 p.m. on Oct. 4. The CDU backing follows the SPD’s decision at the end of last week to enter into exploratory negotiations with its main rival.
“There are big differences with the SPD, but we’re also able to compromise,” Volker Bouffier, the Christian Democratic premier of the western state of Hesse and a CDU vice chairman, told reporters before his party met today.
After a first step toward a coalition with Merkel’s bloc, the Social Democrats began positioning over the weekend to extract policy concessions and cabinet posts. German President Joachim Gauck has invited party leaders for meetings this week to help the push to form a new government.
“We’ll have a very challenging schedule,” Carsten Brzeski, chief economist at ING-Diba AG, said in an interview. The length of the talks may affect the schedule for euro-area projects such as a banking union and bailout decisions regarding Greece and Portugal that must come by year end, he said. He also cited the risk that “the whole thing fails” if the SPD membership rejects a coalition agreement.
A week after Merkel won a third term in the best election result for a political party since German reunification -- 23 years ago this week -- SPD members signaled their reluctance about being overshadowed by the popular chancellor. The talks could further complicate European policy making as a teetering Italian government highlights risks in delaying decisions on overcoming the debt crisis.
The SPD’s general-secretary, Andrea Nahles, asked about a time frame for a party membership vote, speculated that negotiations could stretch into next year.
“All of this could very well take longer anyway,” Nahles told reporters at the party’s headquarters in Berlin. “Whether we end up with a finalized coalition in December or January, nobody is able to say at the moment.”
Germany’s SPD, which won 25.7 percent of the vote in the Sept. 22 election compared with 41.5 percent for Merkel’s CDU-led bloc, voted Sept. 27 to open preliminary talks with their main opponent. A second meeting of about 200 SPD delegates will be required to open coalition talks officially.
The German Finance Ministry dismissed a report in Der Spiegel this weekend that Wolfgang Schaeuble plans to propose an increase in the wealth tax in an appeal to the SPD. Schaeuble later told Bild newspaper that he sees “no reason” to raise taxes, adhering to the party’s campaign pledge.
Voters “have my word” that taxes won’t go up, Horst Seehofer, chairman of the Merkel-allied Bavarian Christian Social Union, was cited as saying in Bild.
Media reports also emerged about the shape of a new cabinet. The SPD may demand six posts, with parliamentary whip Thomas Oppermann at the Finance Ministry and SPD Chairman Sigmar Gabriel replacing Ursula von der Leyen as labor minister, the Frankfurter Allgemeine Sonntagszeitung reported, without saying where it got the information.
Gauck took the unorthodox step of requesting one-on-one meetings with party leaders at the Bellevue presidential palace in Berlin to gauge the path forward, the Sueddeutsche reported. Gauck has the authority to call new elections should talks fail.
The SPD campaigned on raising the income tax for top earners, establishing a nationwide minimum hourly wage of 8.50 euros ($11.48) and putting in place rent controls. Gabriel said on Sept. 27 that the party has “no fear” of remaining in opposition or facing new elections.
Any coalition agreement would be put to a ballot among the party’s broader membership, Gabriel said. The party is holding a conference in Leipzig Nov. 14-16, when it could potentially ratify any agreement to enter a grand coalition with Merkel.
Hermann Groehe, the CDU’s general secretary, said his party was also open to talks with the Greens, whom he praised for moving away from positions “to the left of the SPD” while saying that the plan remained to talk first to the Social Democrats. Merkel will mark reunification day on Oct. 3 in Baden-Wuerttemberg, the state which is ruled by Germany’s only Green prime minister, Winfried Kretschmann.
“The point of departure for the talks is our governing program,” the CDU’s caucus chairman, Volker Kauder, told yesterday’s Welt am Sonntag. “The SPD is not the winner of the election. The voters want CDU policy.”
Merkel will lead the CDU into his week’s talks, alongside her chief of staff, Ronald Pofalla, plus Schaeuble, Groehe, Kauder, Bouffier and Stanislaw Tillich, Saxony’s premier, Die Welt reported today. The SPD will send in Gabriel, Nahles, caucus leader Frank-Walter Steinmeier, defeated chancellor candidate Peer Steinbrueck, Hamburg Mayor Olaf Scholz and Hannelore Kraft, the prime minster of North Rhine-Westphalia.
“Exploratory talks serve to give a sense of how much time both sides consider to be appropriate,” Groehe said. “We need to work quickly and thoroughly,” he said. “We don’t have an unlimited amount of time.”
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