Coalition Politics

Merkel's Government Gets Back to Work

Party leaders German Chancellor Angela Merkel (R) of the Christian Democratic Union (CDU), Horst Seehofer (C) of the Christian Social Union (CSU) and Sigmar Gabriel of the Social Democratic Party (SPD) arrive for a news conference after signing a preliminary agreement, which has still to be approved by the members of the SPD, in the Bundespressekonferenz in Berlin, November 27, 2013. Chancellor Angela Merkel's conservatives and the centre-left Social Democrats (SPD) clinched a coalition deal early on Wednesday that puts Germany on track to have a new government in place by Christmas. The agreement was struck roughly two months after Merkel was the clear winner in national elections but fell short of a parliamentary majority, forcing her into talks with the arch-rival SPD, with whom she ruled in an awkward "grand coalition" during her first term as Chancellor from 2005-2009. REUTERS/Thomas Peter (GERMANY - Tags: POLITICS)
Party leaders, Chancellor Angela Merkel (r) Horst Seehofer (c) and Sigmar Gabriel.
  • Why it matters

    Why it matters

    The government must work together to clear a legislative backlog on contentious issues, like the inheritance tax and pensions, which have been ignored recently.

  • Facts

    Facts

    • Germany held three sets of regional elections on Sunday, which pitted the three governing parties against each other.
    • The country will have to hold general elections before October 2017.
    • The government has a backlog of legislation it needs to work through, including pensions, the labor market and inheritance tax.
  • Audio

    Audio

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The business of government has been put on hold in recent weeks, as all parties poured their energies into last Sunday’s three state elections. But now, with the drama over, the governing parties are getting back to work.

On Wednesday, the ministers in the three parties that make up the current right-left ruling coalition, the Christian Democratic Union, their Bavarian sister party, the Christian Social Union, and the Social Democrats, are coming together for their first cabinet meeting since the elections.

The agenda for that meeting looks dull. It includes things like the “draft legislation to improve the assertion of claims by authors and practicing artists to suitable compensation,” yet it marks the start of a return to normality as the parties return to the business of running the country.

Sources say the first big meeting of the three party leaders, Chancellor Angela Merkel, Horst Seehofer, head of the CSU, and SPD leader Sigmar Gabriel, will likely take place “after Easter.”

Ms. Merkel and Mr. Seehofer are already scheduled to meet later on Wednesday and are likely to nail down the main issues. Coalition sources say that Mr. Gabriel may also be invited to that discussion.

There is no shortage of topics to discuss. One of the most contentious is the labor market. In their coalition agreement, the three mainstream parties had agreed to regulate temporary employment and contracts for services in such a way that they can no longer be misused as an instrument of wage dumping.

The first draft legislation, drawn up by the SPD Labor Minister Andrea Nahles, failed because Ms. Merkel and other CDU ministers felt it went beyond the coalition agreement.

And then Mr. Seehofer’s party obstructed the second draft. The CSU parliamentary group leader Gerda Hasselfeldt said on Tuesday she would seek to clarify the remaining objections, such as the definition of equal pay for temp workers and permanent members of staff, in talks with Ms. Nahles.

However, with the labor ministry insisting that there is no need to change the legislation, it is likely to be a topic for the leaders meeting. Family Minister Manuela Schwesig’s plans to promote equal pay for men and women through a salary disclosure requirement could also be on the agenda.

Schäuble, wants to present the 2017 federal budget to the cabinet next Wednesday, but it is by no means certain that it will be completed in time.

Pensions are another source of division. The government has committed to preventing people who have been paying contributions for many years from slipping into old-age poverty. The plan calls for using tax revenues to guarantee a pension above the welfare level.

However, this is subject to funding in the coalition agreement, and in light of costly pension concessions like retirement at 63 and a pension for mothers, the expectation was that the project was not going anywhere in the current legislative period.

Still, Ms. Nahles is determined to submit draft legislation this year, so that the pension for lifelong efforts could become law in 2017.

One issue where the SPD and the CDU are working together concerns inheritance tax breaks for family-owned companies.

Both main parties are in favor of scaling back the tax breaks. They are backed by the Federal Constitutional Court, which had declared the benefits for company heirs as too generous, but are being blocked by the CSU.

On February 11, the heads of the individual parliamentary groups had settled on a compromise over the issue of inheritance tax, but after meeting with owners of Bavarian family-owned companies, Mr. Seehofer then presented their eight-point list of demands. The CDU argues that some of Mr. Seehofer’s demands would make the legislation unconstitutional.

Either way, the reform must be completed by June 30, 2016, according to the ruling by the Constitutional Court.

Another area of dispute is between the 16 federal states and the central government. In December, the states had agreed amongst themselves that the federal government should transfer €9.7 billion ($10.8 billion) in annual tax revenues to the states. Finance Minster Wolfgang Schäuble has only offered €8.5 billion.

The states also want the redistribution of income among federal, state and local governments not to take place between the states in the future. Instead, they want the federal government to distribute the funds directly to the poorer states.

schäuble hand-michael kappeler-dpa
Finance Minister Wolfgang Schäuble wants to avoid debt. Source: Michael Kappeler/DPA

 

Meanwhile, Mr. Schäuble, wants to present the 2017 federal budget to the cabinet next Wednesday, but it is by no means certain that it will be completed in time. The Social Democrats want several billions more in spending as part of a solidarity package to integrate new refugees. But Mr. Schäuble’s plan, on the other hand, is all about avoiding new debt. The two objectives are hardly compatible, and it is quite possible that the cabinet meeting will be postponed because of the dispute.

Other spending requests will also need to be addressed. In April, the coalition wants to determine whether and how it will subsidize electric cars. In a rare moment of unity, Mr. Gabriel and Mr. Seehofer are both proponents of a government-funded buyer’s premium for electric cars. But Mr. Schäuble remains unconvinced.

One area where the government has made progress, surprisingly, is over refugees. After weeks of wrangling, the coalition partners had already agreed on a new asylum package, and have declared Algeria, Morocco and Tunisia as safe countries of origin. This would make it possible to accelerate the processing of the asylum applications of migrants from the North African countries and deport rejected applicants back to their countries more quickly.

But even here, the coalition needs the approval of the regional parliaments, via the upper house of parliament, the Bundesrat, which will address the issue for the first time on Friday.

The finances are the main sticking point. The states want the federal government to cover at least half of the refugee-related expenditures of state and local governments, or about €10 billion a year.

 

Donata Riedel covers economic policy for Handelsblatt. Frank Specht  focuses on the German labor market and trade unions. Klaus Stratmann is the deputy bureau chief of Handelsblatt in Berlin. Jan Hildebrand leads Handelsblatt’s financial policy coverage from Berlin. To contact the authors: riedel@handelsblatt.comspecht@handelsblatt.com, hildebrand@handelsblatt.com and stratmann@handelsblatt.com

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