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Germany’s parties reach grand coalition deal

Germany’s parties reach grand coalition deal

07/02/18 - 16:23 - Left-of-centre Social Democrats to take finance and foreign ministries

Berlin

Angela Merkel ended months of political paralysis on Wednesday by reaching a deal for a new coalition government with the Social Democrats that awarded the centre-left higher spending on pensions and public services and new sway over the future of the eurozone.

The agreement to renew a “grand coalition” between Germany’s two largest parties would give Ms Merkel’s junior partners both the finance and foreign ministries, allowing them a critical role in shaping Berlin’s policy on Europe over the next four years.

The concessions are a sign of the extraordinary lengths Ms Merkel had to go to win over the SPD, many of whose members dread the thought of another four years in government with her Christian Democrats and its Bavarian sister party, the CSU. If approved by the SPD’s 460,000 members, the deal would end the federal republic’s longest period without a government since the second world war. It would resolve a four-month stalemate ushered in by September’s inconclusive national elections in which both leading parties lost support.

The enhanced status of the SPD, which has called for the creation of a so-called United States of Europe by 2025, could also herald a greater openness to proposals from Emmanuel Macron, French president, for reforming the EU and deepening eurozone integration.

Martin Schulz, the SPD leader and foreign minister-designate, said the new grand coalition would signify a “fundamental change of direction in Europe”. “With this . . . agreement, Germany will return to an active and leading role in the EU,” said Mr Schulz.

Ms Merkel acknowledged that “many will be upset” that her CDU will no longer be running the finance ministry, where CDU stalwart Wolfgang Schäuble had dominated eurozone policymaking for the past eight years. But she praised a deal as providing a “good foundation for a stable government” and would bring a “new dynamism to Germany”.

The coalition agreement also hints at a desire to poach financial services from the UK after Brexit. “In view of the upcoming exit of the UK from the EU we want to make Germany more attractive for financial institutions,” it says.

The appointment of Mr Schulz and of Olaf Scholz, the current SPD mayor of Hamburg, as finance minister and deputy chancellor, are a coup for the SPD, which in September scored its worst election result in Germany’s postwar history. It had been expected to win either the foreign or the finance ministry, but not both.

Already, voices within Ms Merkel’s CDU are saying the chancellor made too many concessions to stay in power. “Phew! At least we still have the chancellery,” tweeted one CDU MP, Olav Gutting. Ms Merkel has long been seen as the main driver of German policy on Europe. But with the SPD now in charge of two such crucial ministries, it is likely she will have to give the party a greater say in EU matters.

“Merkel can now no longer do Europe policy the way she has over the past eight years, where she basically decided everything herself,” said Josef Janning, senior policy fellow at the European Council on Foreign Relations.

Ms Merkel was under enormous pressure to win the Social Democrats round, after the breakdown of her earlier attempt to form a coalition with the greens and liberals. A revival of the grand coalition was her only chance of staying in power for a fourth term as chancellor, short of running a minority government — an option she repeatedly ruled out.

There remains one last hurdle on the road to a new government. The coalition deal must now be put to the SPD membership, many of whom are fiercely opposed to propping up Ms Merkel for another four years.

There is also deep distrust of Mr Schulz, who vehemently rejected the idea of a grand coalition immediately after the election and swore he would never serve in a Merkel-led cabinet — but then changed his mind. In a sign of his waning popularity in the SPD, Mr Schulz on Wednesday relinquished his chairmanship of the party to Andrea Nahles, the current head of the SPD group in the Bundestag.

Talks between the SPD and CDU/CSU were dogged for weeks by disagreements over health and labour policy, with the SPD insisting on measures to restrict short-term workers’ contracts and wide-ranging reform of Germany’s health system. It did, however, back away from an earlier demand to in effect phase out private health insurance.

The Bavarian CSU did well out of the coalition deal. Horst Seehofer, its leader and a leading critic of Ms Merkel’s open immigration policy, will head an expanded interior ministry, which in addition to overseeing migration and law enforcement will also take responsibility for construction and “homeland affairs”.

The CSU will also continue to run the transport ministry, which will be expanded to include digital affairs, as well as the international development ministry. In addition to the foreign, finance and labour ministries, the SPD was also granted the family, justice and environment ministries. The CDU was awarded the defence, economy, health, education and agriculture ministries.

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