20 November 2013

German coalition negotiations - progress made but financing still up in the air

Partially  translated from the German

European Policy

As reported by Welt, in their negotiations last Wednesday CDU/CSU and SPD have adopted a common stance on European policy. The paper states that increased efforts are needed to tackle youth unemployment and that debt should not be mutualised in the EU, meaning "no future pooling of sovereign debt or a transfer union in the eurozone", as OpenEurope put it.

However, German papers, notably the Frankfurter Allgemeine Zeitung, Spiegel and Welt, also report on the "faultline in Germany’s Grand Coalition over the future of the euro", as stated by Eurointelligence, in the form of a document put forward by Chancellor Merkel’s Bavarian sister party CSU. This protocol note states that the CSU is "committed to ensuring that Member States that are not able to meet the stability criteria of the Maastricht Treaty have the option to leave the euro area temporarily". The document, which CSU representatives insisted would be mentioned in the minutes on the agreement on European policy, also repeates their call for referenda on "European policy decisions of special importance" and the re-transfer of competences to the EU Member States as well as a reuction of the EU Commission's size.  

According to the Spiegel however, the CDU and SPD do not endorse the CSU's position. The two Secretaries General Hermann Gröhe (CDU) and the Andrea Nahles (SPD) did not even mention the protocol note at their joint appearance, rejoicing publicly about a high degree of unity in European policy issues. The final paper was adopted by the full coalition negotiation team, comprising around 75 politicians.

FTT/ESM

The Handelsblatt reports that the SPD will agree to use the eurozone’s ESM rescue fund for direct recapitalisation of troubled eurozone banks only if a financial transaction tax is introduced. Reuters writes that German parties discussing policies for a coalition government are urging the rapid implementation of a financial transactions tax among EU countries, covering stocks, bonds, currencies and derivative contracts.

Finance Minister Wolfgang Schäuble has repeatedly made ​​it clear that for him a direct banking recapitalisation by the ESM could only happen under strict conditions. These would include a liability cascade (bail-in) according to which first the owners, creditors and depositors of a large bank had to pay, and then the nation states and only after these the ESM. To allow a direct ESM recapitalisation, the German ESM law would have to be changed as well. Speaking on the Tagesschau, he said: "We have the firm intention of changing the legal basis, and fulfilling our obligations".

Agreements on domestic issues

According to the Welt, as well as the sub-group negotiating European policy, the groups dealing with justice, environment, consumer protection and education and reseach also successfully concluded their negotiations and had their final papers adopted by the full coalition negotiation team, the "great round".

Defence Minister Thomas de Maizière (CDU), his Parliamentary Secretary Christian Schmidt (CSU) and SPD parliamentary leader Frank-Walter Steinmeier announced that the group on foreign affairs, defence, development, politics and human rights had finished their negotiations as well, reports the Süddeutsche Zeitung.

The Spiegel reports that CDU/CSU and SPD have also found a common line on their budget policies and fiscal consolidation. The goal remains to present a structurally balanced budget in 2014 and to manage without new debt from 2015 onwards. However, significant funding questions remain as yet unresolved, say party representatives. European specifications and the national debt break should be strictly adhered to. That also means that until the end of 2017 the debt level of now around 80 per cent GDP should be reduced to less than 70 per cent. Further, the increase in spending during the entire legislative period should if at all possible not exceed GDP growth. 

Both parties have also agreed in the working group Labour and Social Affairs on the introduction of a minimum wage, the controversial mothers' pensions and a sufficient pension for low income earners, reports the Süddeutsche Zeitung:

A special commission will decide on a year-by-year basis on the level of the minimum wage. The parties, however, are yet to agree on an entrance level or when this law would take effect - the CDU is against the introduction of a minimum wage before 2016. The Bundesbank warned that a statutory requirement is an intervention in wage bargaining structures and would amount to significant employment risks.

Mothers' pension: The improvement of the pension for women who had children before 1992 will definitely come. Again, level and financing are still open. The same applies to the agreement on an adequate pension for low income earners.

Women's quota: CDU/CSU and SPD have agreed that from 2016 there should be a minimum of 30 per cent of women on executive boards of companies listed on the stock market. Other businesses will have to define and publish their own binding targets for increasing the proportion of women in top posts from 2015.

Disagreement and unease

Still debated are the questions of a car toll for foreign vehicles (as pushed for by the CSU), double citizenship, and certain health and care provisions, reports the Süddeutsche Zeitung. The CDU/CSU and SPD Finance Working Group will also have to meet again to discuss how to raise up to €50 billion to fund these new public spending programmes, writes the Handelsblatt. According to the FT (subscription required), Ms Merkel has warned that all proposals involving spending must be assessed together – and financed without raising taxes or increasing debts. "As often with such deals, nothing is agreed until everything is."

Overall, according to the news agency dpa, there are still more than 100 points to be agreed. Nevertheless, both parties still maintain that they aim to submit the final coalition agreement by 27 November. "The negotiations are at a critical stage", Chancellor Angela Merkel is quoted in the Welt, "and we intend to finish them mid next week". Still, she commented with caution on the chances of success: "I am still convinced that this can work. Whether we succeed will be seen in a few days."

Ms Merkel is not cautious without reason, and indeed there has been growing unease within the bases of both parties about the ongoing coalition negotiations. The German media report that the membership of Angela Merkel’s CDU party is becoming increasingly dissatisfied and CDU heavyweights including Günther Oettinger, European Commissioner for Energy, State premier of Hesse Volker Bouffier and former CDU/CSU parliamentary group chairman Friedrich Merz, had apparently met in Berlin on Sunday to discuss their concerns over the Financial Transactions Tax and proposed policies on spending, taxation and energy, writes OpenEurope. 

Unease in the SPD is also strong as ever, with the FAZ quoting the Chairman of the Young Socialists, Sascha Vogt, who considers the party's referendum on the coalition agreement as still completely open. "With only the agreements reached up to this point in the negotiations, a cooperation with the CDU/CSU is unthinkable", he said.  In an interview with Focus, Head of the CDU parliamentary group Michael Fuchs said he did not exclude the possibility of a new election.

The 470,000 SPD members will have the decisive say on any coalition agreement, writes the FT (subscription required). If the members vote no, the bid to build a grand right-left coalition will collapse – and with it hopes of creating a new German government before the year-end. Political uncertainty would follow and, possibly, new elections. Last week’s SPD party conference came as a sharp reminder of the difficulties Mr Gabriel will face keeping his own troops in order. 

As the Berlin mayor Klaus Wowereit said: "Among the SPD grassroots there is strong emotional opposition to a grand coalition. Everything depends on the results of the negotiations." 

Summary by Jana Uehlecke