Merkel Wins Over Social Democrats for Power-Sharing Talks

Chancellor Angela Merkel and Social Democratic Party leaders agreed to start official coalition talks, opening the path to forming Germany’s next government.

Negotiations were scheduled to begin Oct. 23, a day after German lower-house lawmakers reconvene and the day before Merkel, strengthened by the biggest election victory since German reunification on Sept. 22, attends a European Union summit.

The SPD team “has the impression that negotiations make sense” and there’s “a common foundation” to try and reach a coalition deal with Merkel’s Christian Democratic bloc, SPD Chairman Sigmar Gabriel said in Berlin today after a third round of preliminary talks between the two sides.

Almost four weeks after Merkel won a third term in national elections, Gabriel’s SPD has to show that it’s fighting to secure at least part of its platform if it joins Merkel as junior partner to govern Europe’s biggest economy. National SPD delegates meet in Berlin on Oct. 20 to vote on the leadership’s proposal to begin coalition talks, which will probably take weeks.

“It became clear that we recognize the challenges Germany faces over the next four years,” Hermann Groehe, the general secretary of Merkel’s Christian Democratic Union, told reporters separately. “We have sufficient common ground to govern our country together successfully.”

Alternatives Worse

The SPD will agree to enter into a so-called grand coalition because alternatives such as new elections would backfire and cost it votes, said Fredrik Erixon, director of the European Centre for International Political Economy in Brussels.

“The SPD is being forced into this coalition even if many people in the party don’t like it,” he said by phone. Yet the party fears “not clinching an alliance with Merkel even more than the acute challenges of forming such a coalition.”

Merkel, 59, was left with the SPD as sole negotiating partner after her bloc and the Greens failed to bridge differences on tax increases to pay for infrastructure, a Green demand that Merkel rejected as “poison” for the economy during her campaign. The SPD, which also campaigned on tax increases, is demanding a minimum hourly wage of 8.50 euros ($11.62) as a condition of entering government.

While Gabriel said negotiators didn’t discuss policy details in the preliminary talks, bargaining is already under way. A leader in Merkel’s bloc, Bavarian Prime Minister Horst Seehofer, broke ranks saying he’s ready to take up the SPD’s minimum-wage demand, which Merkel rejected during her campaign.

Wages, Taxes

Wages and taxes are among the disputes on the table. Merkel regards her no-new-taxes pledge as one of two red lines in talks with the SPD, which wants to raise the top income-tax rate to 49 percent from as low as 42 percent. The other taboo is joint euro-area bonds, with all other topics, including minimum wages, open to negotiation, according to a person familiar with her strategy.

As the SPD sticks to its minimum-wage demand, Merkel favors an industry-by-industry approach through collective bargaining.

Joining a Merkel government “makes no sense” unless that coalition backs the SPD’s minimum wage concept and better pay conditions for temporary workers, Thomas Oppermann, the party’s parliamentary whip, said yesterday.

Cutting a Deal

Merkel’s bloc may be ready to deal. Seehofer, who heads the Bavarian-based Christian Social Union allied with Merkel, said he could envisage a minimum wage if the SPD dropped its demand for higher income taxes, the Munich-based Sueddeutsche Zeitung newspaper cited him as saying in an interview published today.

Heading a so-called grand coalition of the two biggest parties would be familiar for Merkel, who governed with the Social Democrats in her first term between 2005 and 2009. With the SPD-led opposition controlling the upper house, it would also help avoid legislative gridlock.

Merkel’s CDU and the CSU will send a combined 311 members to the 631-seat Bundestag, with the SPD taking 193 seats. In 2005, when Merkel saw off SPD Chancellor Gerhard Schroeder by a single percentage point and was forced into a grand coalition with his party, she took 226 seats to the SPD’s 222 seats.

“Everything will be fine,” Seehofer told reporters after today’s agreement with the SPD.

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