German Social and Christian Democrats agree on new government

November 11, 2005

Nearly two months after the German parliamentary election, the Social Democrats (SPD) and the Christian Democrats (CDU) and their sister party, the Christian Socialists from Bavaria (CSU), have reached a hard-fought deal to form a grand coalition, paving the way for Angela Merkel to become Germany's first female chancellor.

When the result of the elections on 18th September prevented both parties from forming a coalition with their respective preferred partners, the Greens and the Free Democrats, they were forced to engage in coalition negotiations with each other.

The negotiations were long and difficult; in the process, Gerhard Schröder (SPD) gave up his ambitions for the chancellorship, SPD chair Franz Müntefering resigned over the refusal of the party leadership to approve his candidate for a high party office, and Edmund Stoiber (CSU) withdrew from federal politics and abstained from becoming Minister of economics.

"After 39 years of being political opponents on the federal level CDU, CSU and SPD want to move our country forward in common responsibility as the federal government", chancellor-designate Merkel said at a joint press conference. Outgoing SPD chair Müntefering added that "cooperation is good for the country". Under the new agreement the value added tax (VAT) will increase by 3% to 19% from the beginning of 2007, the legislative competence on the federal level and of the states will be modified, and further reforms of the job market will be implemented. Married persons with an income that exceeds 500,000 € will have to pay an extra 3% on their income, the same applies to unmarried persons with over 250,000 € income. Dismissal protection only kicks in after two years of employment. The agreement also includes several amendments, some of them define by the letter how the wording of the constitution will be changed.

The coalition agreement was criticised by trade unions, employers' federations, and industry organisations. A VAT increase would "stall the economy" said Klaus Wiesehügel, the head of a construction union. The chairman of Porsche, Wendelin Wiedeking, said that "we were only served lies. Everyone, whether low or high income, notices that."

Party conferences are expected to ratify the agreement next week; the election of Merkel as chancellor is scheduled for 22nd November.