21 March 2005

EZA 668: Germany; Politics / Reform

Small-scale reforms agreed by Government and opposition amidst toppling of a state government
The 17 Mar05 meeting between chancellor Schröder and opposition leaders Merkel and Stoiber yielded a small-scale agreement on an economic stimulation plan Key issues are: a cut in corporate tax rates to 19%, lower inheritance tax and income tax rates benefiting small companies and increased investment spending However, the contentious atmosphere and Schröder’s block on labour market reforms, imply that a grand coalition after the Sep 06 federal elections remains a remote option - at best confined to a situation, where, with the post-communist PDS in parliament, neither side can muster a majority in the Bundestag Failure of the incumbent Red-Green state government in Schleswig-Holstein and possible state elections could shift the balance of power towards the opposition parties

SummaryThe roundtable meeting between Schröder and opposition leaders Angela Merkel and Edmund Stoiber (joined by foreign minister Joschka Fischer) when taken alongside the speech of president Horst Köhler two days earlier mark a change in the political / economic climate for the better. Although the key measures agreed upon are generally judged as limited in scope, they can be seen as a positive signal for a continuation of the reform process before the Sep 06 elections.

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© Graham Bishop