Germany: A Coalition Deal At Last!

The political bargaining between the CDU-CSU and the SPD in order to achieve a coalition deal following the general elections of 22 September has been more drawn out than expected. After 66 days - compared with an average of 37 days in the past - the two parties have reached a written agreement of 185 pages. The SPD can pride itself on having succeeded in what it set out to do, at least theoritically. The flagship measures - such as the introduction of a minimum wage, lowering the retirement age, dual nationality for children born in Germany to parents not from the EU and equality between men and women at work - that it had defended during the election campaign are included in the coalition deal. All of these measures represent a total of EUR 23 billion spread out over four years, equal to 1 point of annual GDP. The coalition deal therefore seems at first glance to participate in the country’s change of economic trajectory, which the United States, the IMF and the European Commission have called for over the last few weeks (see our Focus: “Germany under scrutiny” of 22 November).

However, on closer inspection, the diagnosis should be more clearly qualified. For sure the SPD can be proud first and foremost, of the introduction of a minimum hourly wage of EUR 8.50 as of 2015, which may concern up to 7 million workers, or 16% of the total wage bill. But the new law is likely to exclude apprentices, seasonal workers and mini jobs. The sectors in which collective agreements set a rate of less than EUR 8.50 will have until 2017 to align wages. Furthermore, a joint committee made up of employee representatives (3), employers (3) and experts (3) will meet regularly to negotiate the yearly increase in the minimum wage. In terms of pensions, the SPD wanted to have the 2007 law repealed concerning raising the retirement age to 67 by 2029. Germans will be able to take full retirement from the age of 63, but subject to certain conditions, namely this only applies to those who have made contributions for a total of 45 years. Lastly, as regards the European Union, the SPD has withdrawn its demands. Sigmar Gabriel’s party has validated Angela Merkel’s choices for Europe. The coalition deal opposes any pooling of debt, as well as the creation of a European deposit guarantee scheme. However, it is in favour of the use of ESM funds for the direct recapitalisation of banks in difficulty, and only if all other avenues have been exhausted.

The CDU has demonstrated its pragmatism and been able to honour almost all of the many election promises made to the middle classes if it wins. Last but not least, Angela Merkel’s party has not made any concessions in terms of budgetary orthodoxy. The aim of achieving a structurally balanced budget between now and 2015 is therefore maintained, as well as reducing debt to 70% of GDP by 2017, compared with 80% at present. In addition,there will not be any tax hikes to finance new measures. The country will therefore have to rely on economic recovery and the tax revenues it is able to raise to finance the spending planned under the deal.

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Lastly, the CSU can also come out of these negotiations with its head held high. Foreign motorists using German motorways and heavy vehicles passing through the country should have to pay a toll charge. This measure, which contravenes the free movement of individuals within the Schengen area, is yet to be implemented.

The hardest is yet to come
The next decisive stage before the new coalition government is formed and the coalition deal is implemented is the referendum of 473,000 members of the SPD, who will vote by post between 6 and 12 December. The results of the vote will be announced on 15 December. All in all, the SPD base should be pleased with the coalition deal. It ensures balanced finances and should help increasing disposable household income, and therefore consumer spending. EU partners should also have something to celebrate, thanks to the expected balancing out of current account surpluses. If the deal is given the go-ahead on 15 December, the Bundestag will meet on 17 December to re-elect Angela Merkel for the third time. The Chancellor will then have a few days to put together her government. In the past, the allocation of ministerial responsibilities was based on the seats obtained in the Bundestag. The SPD should therefore have six ministers out of the 14 in Merkel’s new cabinet. The CDU should have five and its Bavarian little sister, the CSU, should have three.

It is highly likely that Franck-Walter Steinmeier, leader of the SPD’s parliamentary group in the Bundestag, will return to the role of Foreign Minister that he held between 2005 and 2009. SPD leader Sigmar Gabriel is expected to get the Ministry of the Economy, and Wolfgang Schaüble is expected to remain as Finance Minister. However, if the SPD base votes against the coalition deal, Angela Merkel would find herself back where she started. In theory, she would have three options: to try to form a new coalition with the Greens, to govern alone without a majority in the Bundestag, or to call a new round of elections. The worst is never certain!

BY Caroline NEWHOUSE