28 November 2013

CDU/CSU and SPD reach grand coalition agreement

Partially translated from the German

German Chancellor Angela Merkel's conservatives (CDU/CSU) and the centre-left Social Democrats (SPD) reached a deal early on Wednesday, after wrangling for over 17 hours and through the night. This means that she should be able to form a government by Christmas, writes the FAZ. Two months after Merkel's landslide election victory and a month after negotiations began, Germany's two biggest political forces clinched a deal that both sides said they could live with.

However, before a new government can be formed and sworn in, the coalition agreement will have to be adopted by the majority of the SPD's 470,000 members who get to vote in an unprecedented referendum, reports the Financial Times (subscription). If the Social Democrats approve the treaty, Merkel could be sworn in for the thrid time as Chancellor in the meeting of the Bundestag on 17 December. The new grand coalition cabinet would then take up work on the same day, reports the Süddeutsche Zeitung.

If the SPD member vote fails, Germany will be in for one of its most turbulent phases in decades, writes the Wall Street Journal. Ms Merkel would have three options: strike an unprecedented coalition agreement with the centre-left Greens; form a minority government in which she would have to haggle for opposition support for every bill; or hold new elections that could catapult an upstart anti-euro party into Parliament - the latter of which is deemed the most likely by the German press.

Cabinet members

Who will be part of the new cabinet is still garded like a "state secret", writes Roland Nelles for the international edition of Spiegel Online, "out of fear of the SPD rank and file. The party members could think that all their top people thought about was getting top posts for themselves. That is why they prefer to keep things under wraps." But the most important cabinet members are likely to be current CDU Finance Minister Wolfgang Schäuble, former SPD Foreign Minister Frank-Walter Steinmeier, SPD party chief and former Environment Minister Sigmar Gabriel, SPD parliamentarian Thomas Oppermann, and current CDU Labour Minister Ursula von der Leyen. 

Finances

"There's something in the coalition agreement for everyone - at least almost everyone", Nelles continues. The new coalition government had plans for billions in new spending, although it was unclear where the money for those programmes would come from. However, the European Central Bank's recent rate cut could allow Germany’s new grand coalition to spend more than originally planned, reports the Wall Street Journal, citing Norbert Barthle, budget spokesman for Chancellor Angela Merkel‘s conservatives. The comments are a rare concession that the ECB’s easy money policy can also benefit Germany, a country renowned for saving and a firm belief in sound money, by keeping the country’s borrowing costs low. "We had pencilled in €10 billion more in debt serving costs for the next 10 years [in our existing budget plans], anticipating higher interest rates", Mr Barthle said. "But because the ECB has cut interest rates further, we have an extra leeway of €1.5 billion annually."

The new government will have to provide more detail as to how it can afford some €23 billion in new spending, given its pledge not to raise taxes and the German law limiting new government borrowing. 

Content

According to the BBC, Chancellor Merkel described the coalition agreement as standing for "solid finances, secure prosperity and social security" and opposing a "debt union" in Europe. Merkel also hailed the deal as "very much in the theme of mutual trust", while SPD leader Sigmar Gabriel said it was fair. 

The Süddeutsche Zeitung compiled the following list (non-exhaustive): 

The parties also struck a deal to allow German-born children of immigrants to hold dual citizenship, rather than having to choose when they turn 23.

Labour market and minimum wage: An SPD key demand was agreen upon - from 2015, a nationwide minimum wage of €8.50 will be set by law - with a few limitations. Collective agreements that have fixed a wage below this limit remain valid until 2016, only afterwards the wage must be raised to at least €8.50 per hour here as well. For certain groups, such as interns or trainees, there will be exceptions. Listed companies however do not have to set a maximum ratio by which the executive pay may exceed the average income of employees.

The parties also agreed that there would be no tax increases, a key demand of the CDU/CSU.

Pensions: Both CDU/CSU and SPD got their respective priorities into the coalition agreement. Both the SPD-backed deduction-free retirement at 63 years after 45 years of contributions and the "mothers' pension" promised by the CDU/CSU for women who had children before 1992, will be introduced from January 2014. However, the deduction-free access will be introduced gradually and the disability pensions are to be improved by the middle of next year. A "solidarity life benefit pension", for low income employees that would amount to up to €850 per month, was decided to be introduced only from 2017 onwards and was therefore de facto postponed. 

Europe

As reported by OpenEurope, the agreement stresses that German must become an official working language of the EU alongside French and English. There is also a strong emphasis on "subsidiarity" and that the EU must only act where action on other levels is not sufficient. In terms of democratic legitimacy, the agreement calls for a "strong role" for the European Parliament and "close involvement" of national parliaments in the decision-making process. It also calls for a standard minimum threshold for the allocation of seats under European elections and a "single European suffrage" to add to stable majorities at the European Parliament.

The agreement contains few details on the new government’s approach to the Banking Union and specifically the resolution funds. The document also contains a rare admission from Germany that the causes of the crisis are "varied" and extend well beyond fiscal profligacy. Specifically to "competitiveness", "imbalances" and "design defects" in the EMU which led to problems in the financial markets. 

Any form of debt-pooling is strictly ruled out, but the new coalition will consider further bailouts even if "only as a last resort" when the "stability of the eurozone as a whole is at risk". Importantly, the agreement reiterates that any use of the ESM, the eurozone bailout fund, needs "approval of the Bundestag". 

Reactions

Italian Prime Minister Enrico Letta welcomed the agreement in Rome, writes the BBC: "The news arriving from Berlin overnight of a decisive step forward over the programme, the deal for a grand German coalition, to me seems to be positive news because a lot of time has passed and I believe that there is a need for a German government as soon as possible."

Some business groups however said the new coalition agreement could hurt Germany's economy by limiting temporary employment and instituting a €8.50 minimum wage, writes the WSJ. On the left, many critics said the changes didn't go far enough — a sentiment that could convince SPD members to vote against the coalition agreement.

Full text coalition agreement (in German)

OpenEurope blogpost on European issues in coalition agreement (includes some translated passages)

Summary by Jana Uehlecke