Merkel Said to Reject Tax Increases, Euro Bonds in Party Talks

German Chancellor Angela Merkel will go into coalition talks with the Social Democrats holding firm to her rejection of tax increases and joint euro-area bonds while leaving all other topics such as minimum wages open to negotiation, a person familiar with her strategy said.

Merkel laid down policy red lines ahead of today’s second-round of exploratory talks in Berlin while insisting that her Christian Democratic bloc will fight to retain control of the Finance Ministry, the person said on condition of anonymity because the meeting will be in private. The SPD favors Thomas Oppermann, parliamentary chief whip, over Joerg Asmussen for the finance post, an SPD party official said separately today.

Three weeks after Merkel secured the biggest election victory since German reunification, battle lines are being drawn in preparation for formal discussions on forging her third-term government. Merkel told senior CDU members this morning that today’s meeting with the SPD might go deep into the night as the two sides begin tackling the most sensitive issues that divide them. She will hold separate talks with the Greens tomorrow.

“You have to either move toward common ground or recognize that it won’t work,” Andrea Nahles, SPD general secretary, told reporters in Berlin today. “We have to see what the central issues are” for Merkel’s Union bloc. The SPD will decide by Oct. 20 whether or not to enter formal negotiations with Merkel and her CDU/CSU bloc, Nahles said.

Third Meeting

Merkel won the Sept. 22 federal elections with the biggest share of the vote since 1990, cementing her status as Europe’s foremost political leader. Yet her preferred Free Democratic Party ally crashed out of the lower house, leaving her in need of another partner to gain enough seats to resume control of Europe’s biggest economy.

During her short telephone call with Christian Democratic Union board members, Merkel said that a third meeting with either the SPD, with whom she governed during her first term, or with the Greens will probably take place at the end of the week, according to two CDU officials. Her party knows it must offer concessions on policy and cabinet posts that the SPD can put to a convention it will hold this Sunday if the SPD is to win a mandate to open formal talks, one of the CDU officials said.

With the Greens party leadership already casting doubt on the negotiations, the Social Democrats are hardening their bid for a nationwide minimum wage of 8.50 euros ($11.52) an hour.

Weekend Podcast

Merkel rejected a statutory minimum wage throughout the campaign in favor of an industry-by-industry approach that allows wages to be set by collective bargaining. She reiterated that line in a weekend podcast, showing no hint of compromise.

Whereas the SPD campaigned for an increase in the top income tax rate, Merkel dismissed tax raises as “poison” for the economy. She also repeatedly rebuffed shared euro bonds or a debt redemption fund to aid indebted states, saying it would undermine incentives to improve their economic competitiveness.

Minimum wages, taxes and state subsidies paid to parents of pre-school children who are cared for at home -- known in German as Betreuungsgeld -- are among the most contentious issues that will be discussed today, the SPD official said. The party is prepared to give up its opposition to Betreuungsgeld though expects an offer on minimum wages to be made by Merkel that it can put to its Oct. 20 convention, the official said.

The SPD is also pushing to gain the Finance Ministry, recognizing that it needs to field an experienced political hand for the post, the official said. That rules out Asmussen, the former German deputy finance minister turned European Central Bank Executive Board member, who wields the technical competence while lacking the political nous required, the official said.

Merkel told her party’s board not to expect any final decisions tonight, the CDU official said. A decision on a preferred coalition partner will more probably be made at the end of the week, according to the official.

Before it's here, it's on the Bloomberg Terminal.