First German Female Chancellor Nears Start
"EU"11/22/2005
BERLIN (AP) - Angela Merkel becomes Germany’s first female chancellor on Tuesday, but only after making serious concessions on taxes and welfare-state cuts that could complicate her goal of fixing the sluggish economy and restoring frayed ties with United States.
Merkel, 51, head of the conservative Christian Democrats, needs support from a majority of lawmakers in Germany’s 614-seat lower house to succeed outgoing Chancellor Gerhard Schroeder. Her “grand coalition” with Schroeder’s center-left Social Democrats holds 448 seats, virtually assuring her victory.
But questions remain over how effective and durable the coalition will be after Merkel bargained away key campaign pledges such as limiting union power in regional wage negotiations and accepted a Social Democrat demand for a “rich tax” on top earners.
Some commentators have speculated that left-wing Social Democrats may snub Merkel in Tuesday’s vote, exposing tensions which could jeopardize the government once it gets to work on a host of tricky issues.
Conservatives have warned them to stick to the agreement. “Everybody knows what is at stake,” Ronald Pofalla, a senior conservative lawmaker, said on ZDF television Monday. “I expect that Angela Merkel will get a good result.”
Merkel’s Christian Democrats and their Bavaria-only sister party, the Christian Social Union, were forced to ally with the Social Democrats after falling short of a clear victory in Sept. 18 parliamentary elections.
The Social Democrats finished a close second and have secured half the 16 seats in Merkel’s Cabinet, including the high-profile finance and foreign affairs positions.
The coalition agreement the two sides signed last week contains contrasting views on how to fight Germany’s biggest problems - double-digit unemployment and sluggish economic growth.
Merkel pushed through a cut in a payroll tax used to finance unemployment insurance and an easing of the rules protecting Germans from being fired - moves designed to decrease the burden of Germany’s creaking welfare state on employers and encourage them to hire new staff.
The two parties have also agreed to bring Germany’s gaping budget deficit back within the EU’s 3 percent limit by 2007.
But Social Democrats have fended off Merkel’s vow to weaken the role of labor unions in industrywide wage bargaining.
The program is being financed partly through cuts in spending and subsidies, such as tax breaks for home-buyers, but also through an increase in the value-added tax from 16 percent to 19 percent and a new top rate of income tax, dubbed the “rich tax,” of 45 percent. The current top rate is 42 percent.
Pension contributions are also set to creep upward and the parties remain deeply divided on how to tame spiraling health costs, prompting warnings the country’s long-awaited economic recovery may be stalled.
The two sides put off the value-added tax rise until 2007, aware of the shaky state of consumer spending. Exports are expected to help the economy grow by 1.2 percent next year.
“2007 will be a problem year, and 2008 particularly. If the coalition does not add much more promising reforms, we will probably see a downward trend in 2007,” Norbert Walter, chief economist of Deutsche Bank, said on n-tv television.
Foreign policy represents another potential minefield. While Merkel has struck a pro-U.S. tone, compared with Schroeder who vociferously opposed the war in Iraq, she had to give the foreign minister’s job to Schroeder’s former chief of staff, Frank Walter Steinmeier.
The alliances Merkel forms with Germany’s neighbors will have a major bearing on the EU’s future direction. She has suggested that she wants to shift emphasis away from the Franco-German axis strongly backed by Schroeder toward the EU’s smaller members.
Merkel’s first round of official trips this week - to Paris, Brussels and London - will be watched for indications of how German foreign policy may change.