14 November 2013

German coalition negotiations halfway but many issues still disputed

With little time left until the self-imposed deadline to draft a coalition accord by the end of the month, the first agreements have been reached between the CDU/CSU and SPD, i.a. on Banking Union, the ESM and the division of Cabinet posts.

Partially translated from the German

Seven weeks after Merkel’s record election victory, she is still more than a month away from being sworn in at the head of a "grand coalition", writes Bloomberg. Negotiators still need to find common ground on a minimum wage, pensions and finances before a draft coalition accord is put to a vote of the SPD’s 470,000 members in December.

"Confidence is growing only slowly" among the SPD negotiators, Thomas Oppermann, speaker of the SPD representation in the Bundestag, said in an interview with the Tagesspiegel newspaper published yesterday and carried on the SPD website. "We are still far away from a result that we can put to SPD members."

The Welt writes similarly that three weeks of coalition negotiations have hardly produced any concrete results. SPD General Secretary Andrea Nahles is quoted by Bloomberg as having said that the dozen working groups sifting through technical details of policy were "more than 50 per cent" of the way through their work. "We still very clearly have a marathon of meetings in front of us", she said, referring to the self-imposed deadline to draft a coalition accord by the end of the month.

The Irish Times comments on the slow progress, saying that for the rest of Europe, this means no real progress is likely until next year on pressing EU projects, such as outstanding details of the Banking Union. At this rate, Ireland is likely to have exited its EU/IMF programme long before any meaningful talks on outstanding bailout business occur – in particular what happens with its nationalised bank debt.

EU-related matters

Banking Union

However, Reuters reported over the weekend that the CDU/CSU and the SPD have reached an agreement on plans for a eurozone Banking Union. The parties agreed that decisions on resolving banks should be taken by a body attached to the group of EU finance ministers, not by the European Commission. Bloomberg had already reported this last week, writing that Dutch Finance Minister Jeroen Dijsselbloem, who chairs meetings of euro area finance chiefs, said he’d be prepared to discuss the German proposal. "The Netherlands prefers that the Commission do this", Dijsselbloem told reporters, "but we can certainly discuss having the Council of the European Union do this on the condition that decisions could be made quickly and effectively. It musn’t be politicised or lead to delays, because resolution decisions must be made quickly."

CDU/CSU and SPD also agreed that the eurozone bailout fund, the ESM, would not be available to help wind down banks. Sources from among the negotiators are quoted by Reuters as having said a number of legal questions needed to be resolved but the goal is to sign off on the agreements soon, so Finance Minister Wolfgang Schäuble can go to a meeting with his EU colleagues on Thursday with a firm German position on the issue. "The talks on this issue are going full steam ahead. Both parties are still far from an agreement on the questions of procedure and content", SPD spokesman Benjamin Seifert said.

The creation of a special body attached to the ECOFIN council would address Schäuble's concerns about the democratic legitimacy of ceding resolution powers to the Commission, however would raise the problem of a legal basis and require treaty change or creating a separate intergovernmental treaty like the one on which the bailout fund is based.

The sources also said until a common resolution fund, to be financed by the banks, had built up sufficient liquidity, national states would have to shoulder the burden of winding down their own banks. Should states run into financial problems, they could turn to the ESM for aid, as Spain had done.

Referenda

Süddeutsche Zeitung reports that one of the CDU/CSU and SPD working groups, for justice and home affairs, led by incumbent CSU Minister for Home Affairs, Hans-Peter Friedrich, has prepared a draft paper calling for more direct democracy via referenda. The proposals said that people should "be consulted directly on European policy decisions of special importance". OpenEurope points out the possible implications, suggesting that this could mean the introduction of a UK-style "referendum lock". The CSU campaigned for the introduction of referenda on important European policy decisions during the election, while the SPD has, in principle, been in favour of direct democracy for some time. While the CDU is somewhat more sceptical, there is still support for this idea within the party's own ranks. Schäuble last year floated the idea of a referendum on a new constitution.

However, leading politicians from Angela Merkel’s CDU party have strictly rejected this working paper, reported the Handelsblatt the following day. "We will not agree to this proposal. Consequently, the next coalition will not introduce measures like this", said Günter Krings, Vice President of the CDU parlimentary group, to the German Press Agency in Berlin. In light of the heated debate in the media, Friedrich clarified that no agreement to this end had been reached and the paper had not been intended for the public, he told dpa.

Nonetheless, the move reflects the deep strains within German society calling for greater say over the EU and its use of German taxpayers’ funds to combat the eurozone crisis, writes the Financial Times (subscription required).

Domestic issues

Pensions

CDU leader Merkel toils over her pension promises - on the campaign trail, she vowed to end a situation where older women who raised children, and missed out on making retirement payments, now have lower pension entitlements than younger women. The CDU insist it is a matter of social justice, but critics suggest the promise was a way to buy votes. Now Ms Merkel has to deliver on a promise with an estimated annual cost of €6.5 billion, half of what Germany’s education and research ministry spends in a year.

The SPD, standing firm on its demand for an €8.50 statutory minimum wage, has pension demands of its own. It wants to see workers who have worked 45 years retire as early as 63 years of age without losing pension payments. Adding up all these pension promises easily reaches €20 billion annually in a country where the demographic timebomb is ticking. How this should be financed is still disputed - the Financial Times (subscription required) quotes Wolfgang Schäuble insisting that "as said before the election, there will be no new debts and no tax increases with the CDU/CSU".

Taxation

Schäuble announced a modest improvement of 0.5 per cent in forecast tax revenues over the next four years. He made clear the determination of the chancellor’s conservative bloc to resist SPD demands to finance spending pledges with tax increases. Schäuble said the government should try to avoid deficits and increases to total debt over the next two years. This goal should not be threatened by "exaggerated spending wishes" or "mistaken decisions".

Cabinet

Merkel and SPD Chairman Sigmar Gabriel have reached initial agreement on how cabinet posts will be divided up, with Gabriel set to become vice chancellor, Der Spiegel reported in this week’s magazine, citing senior party sources it didn’t name. The longer talks drag on, the less attractive the idea of a grand coalition is to German voters, writes again the Irish Times. Almost 60 per cent liked the idea on election night, now just 44 per cent approve.

And all the while, Germany’s talks inch forward.