Merkel clinches coalition deal in early morning talks

Accord sets German chancellor on track for third term leading Europe’s biggest economy

German chancellor Angela Merkel has clinched a coalition agreement with the Social Democrats that calls for a national minimum wage and pledges to increase spending on pensions and infrastructure without raising taxes.

More than two months after Dr Merkel won national elections, the accord reached shortly before 5am in Berlin today after 17 hours of negotiations sets Ms Merkel on track for a third term leading Europe’s biggest economy until 2017.

The coalition isn’t a done deal yet. It still must be passed by the entire SPD, which plans a referendum among its roughly 470,000 members. Der Spiegel magazine termed the vote an “incalculable risk” in a cover story this week.

Ballots will be sent out at the end of this week and the result will be tallied on December 14th-15th. If the SPD approves, Dr Merkel will be elected in parliament and sworn in on either December 17th or 18th.


"We cut through the knot! Agreement has been reached," Michael Grosse-Broemer, parliamentary group whip of Dr Merkel's Christian Democratic Union, said in a Twitter message. News of the agreement was also confirmed by CDU spokesman Axel Baeumer.

The coalition pact suggests Dr Merkel plans to stick to the European policies she followed during Europe’s debt crisis, including a rejection of joint liability for euro nations’ debt.

Dr Merkel is seeking to keep Germany on track for debt reduction and her parliamentary leader, Volker Kauder, said in a Tagesspiegel newspaper interview that only €15 billion of extra funding is available for the next four years.

Deutsche Presse-Agentur today reported that the coalition partners agreed to €23 billion in additional spending.

Debt Liability

“The principle that every member state is liable for its own debt must be maintained,” according to a draft of the agreement. “All forms of collectivising state debt would endanger the necessary orientation of national policies in every member state.”

A note from London-based Teneo Intelligence said “the real risk going forward is an ever-greater unwillingness of the new coalition to mutualise the fallout from Europe’s persistent banking problems.”

German economic growth will accelerate to 1.6 per cent next year, Dr Merkel’s Council of Economic Experts said on November 13th. That would help balance the budget and cut the unemployment rate to 6.8 per cent - the lowest since the 1990 German reunification, according to the council.

When Dr Merkel won the 2009 election, unemployment exceeded 8 per cent and the economy was in its worst recession since the second World War. The 10-year German government bond yield was at 1.69 per cent yesterday, compared with more than 3 per cent in the final quarter of 2009.

The two sides also agreed in the blueprint that they would introduce a tax on financial transactions including currency trades and derivatives contracts, tighten rent control laws, reduce subsidies for wind power and pass a law in 2014 that will impose a toll for using the autobahn network aimed at foreign drivers that won’t raise costs for domestic car owners.

Cabinet ministers will not be named until the SPD membership ballot has been counted in mid-December, SPD spokesman Tobias Duenow told reporters yesterday.

Finance minister Wolfgang Schäuble is vying to stay on in his position.

Germany’s new foreign minister will be Frank-Walter Steinmeier, who held the post from 2005-2009 under Dr Merkel’s previous grand coalition with the SPD, the news magazine Der Spiegel said, citing unnamed CDU and SPD officials.

Under the coalition accord, the SPD backed down from its election campaign demands for income tax increases that Dr Merkel rejected as "poison" for the economy. Dr Merkel's CDU and its Bavarian Christian Social Union affiliate won 41.5 per cent, compared with the SPD's 25.7 per cent in national elections on September 22nd, a victory partly attributed to her leadership in the euro debt crisis since 2010.

Dr Merkel (59), has led Germany since 2005. This will be her third term in office.