Oct. 4 (Bloomberg) -- German Chancellor Angela Merkel’s party will have to drop its opposition to tax increases if it wants a coalition with the Social Democrats, said Axel Schaefer, the SDP’s caucus group leader from North Rhine-Westphalia.
Merkel’s Christian Democratic-led bloc, having refused to countenance raising taxes, “has erected barriers that I can’t see being overcome,” Schaefer, whose state is the SDP’s biggest regional power base, said by phone two days ago. The situation is “extremely difficult,” since tax increases mustn’t be a “taboo,” he said.
Tax policy is emerging as a key sticking point to coalition building as exploratory talks begin between the two main parties in Berlin today. The negotiations begin at 1 p.m. local time and will probably run for three or four hours, with press statements likely at about 5 p.m., according to the CDU.
Volker Kauder, the parliamentary caucus leader of Merkel’s bloc, and Horst Seehofer, the Bavarian prime minister who heads her Christian Social Union ally, have both said that tax increases are a red line that won’t be crossed.
Schaefer, whose region is more skeptical of a so-called grand coalition with Merkel’s bloc than other SPD factions, said her party’s position made a compromise “hard to imagine.” He cited the need to consider tax increases to allow for secure financing for education, pensions and especially for hard-pressed communities.
Twenty-one people are due to attend the negotiations today: seven each from Merkel’s Christian Democratic Union and from the Bavarian CSU, plus seven Social Democrats. Merkel has convened separate exploratory talks with the Greens next week on Oct. 10.
Karl-Josef Laumann, the head of the CDU caucus in North Rhine-Westphalia’s regional parliament and a member of the CDU’s national board, urged against using today’s talks to push “the most difficult issues” including tax increases, which he said “aren’t conceivable for us.”
Rather, the two parties “ are fairly close together” on minimum wages, he said on Deutschlandfunk radio. He advocated a grand coalition to allow legislation to be passed in the upper house, where the Social Democratic-led states hold a majority, and dismissed the prospect of coalition between his party and the Greens.
Minimum wages and taxes are among the four “crucial topics” on which agreement needs to be reached to form a coalition, according to Dirk Schumacher, an economist at Goldman Sachs in Frankfurt. The others are infrastructure spending and ways to curb rising energy costs as a result of the transition to renewables from nuclear power.
Today’s deliberations are aimed at determining whether there is enough common ground to start coalition talks proper. “We expect this first hurdle to be passed, but the negotiations are likely to be complicated,” Schumacher said in a note. “We continue to see a grand coalition as the most likely outcome on the grounds that the alternatives would ultimately be less appealing either to the CDU/CSU or the SPD.”
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