Five Policies That Will Make or Break Merkel's Next Coalition

  • German leader needs to mesh SPD, own side’s demands for deal
  • Migration, finances, Europe, defense on list of sticky topics

Angela Merkel is going for the familiar by seeking to extend her coalition with Germany’s Social Democrats, her partner for the past four years. That doesn’t mean her last-ditch bid to break months of political stalemate and start her fourth term as chancellor will be easy.

“We still have a lot ahead of us,” Volker Kauder, caucus leader for Merkel’s Christian Democratic Union in parliament, told reporters on Tuesday. “Large chunks” remain unresolved, he added.

Historic losses in a federal election in September have left both sides straining for advantage and struggling to convince voters they’ll get a modernized agenda. The two sides want to finish preliminary discussions by Thursday and move toward formal talks on a new government. As Merkel’s CDU-led bloc and the SPD contemplate the risk of failure and a new election, here’s a look at key policy areas dividing them and the likely chances of a deal.

Europe

The Social Democrats are pressing Merkel to do more to embrace French President Emmanuel Macron’s agenda for strengthening the euro area, a project met with hostility by her bloc’s conservatives, particularly in her Bavarian sister party, the Christian Social Union. SPD head Martin Schulz last month backed calls for an EU finance minister, a euro-area budget for investment and a Europe-wide minimum wage. He doubled down by suggesting a “United States of Europe.” Though Merkel is pro-European and consistently backed bailouts during Europe’s debt crisis, critics in her ranks warn against turning Europe into a “transfer union” where Germany picks up the tab. Her leeway on fiscal transfers is strictly limited, but the SPD knows it.
Verdict: Moderate

Asylum Numbers Stay Low

Germany's monthly influx steady near 15,000

Source: German Interior Ministry

Migration

Europe’s migration crisis, which sent more than 1 million refugees to Germany since 2015, is the main flashpoint since the two sides last got together in 2013. Merkel’s bloc, led by the CSU, wants to extend a decision by the last government to bar family members of asylum seekers with limited rights from coming to Germany for three years. The SPD wants to loosen it. “We won’t cave in,” CSU head Horst Seehofer told German newswire DPA last week. “We’ve already paid a high price for Berlin’s refugee policy,” he said, alluding to Merkel’s open-borders stance, which the CDU blames for the rise of the anti-immigration Alternative for Germany party.
Verdict: Difficult

Taxes

While Merkel’s bloc and the SPD are committed to balanced budgets over the next four years, they’re at odds over spending and taxation. The SPD is on record as wanting to raise the top income-tax rate. Merkel’s side wants to cut corporate taxes and phase out a levy for supporting ex-communist eastern Germany. “Business tax rates must fall,” CSU lawmaker Hans Michelbach told WirtschaftsWoche magazine. Both sides agree that they can spend about 45 billion euros ($54 billion) more through 2021 without having to borrow, thanks to a booming economy and low refinancing costs.
Verdict: Moderate

Defense

With U.S. President Donald Trump insisting that Germany owes “billions” for its defense, Merkel faces unprecedented pressure to boost military outlays to NATO’s target of 2 percent of economic output from about 1.2 percent. The Social Democrats say that goal is wasteful militaristic “nonsense.” Merkel and her allies are upholding the 2 percent goal.
Verdict: Moderate to difficult

Social Programs

Merkel’s bloc opposes an SPD plan to expand the role of public health care and squeeze out private health insurance, which about 10 percent of Germans buy. “That won’t work,” the acting chancellor told a CSU convention in December. The Social Democrats also want to give part-time employees a legal right to return to full-time work, a plan aimed at helping close the gender pay gap that went nowhere in the last government. The SPD wants to make day care and preschool free; the CSU has called for expanded retirement benefits for stay-at-home mothers. Germany’s fiscal leeway (see above) may ease the way to compromises.
Verdict: Moderate to difficult

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