13 November 2005

Germany finally has a government - almost

As of Friday evening, Germany finally has a government again - almost. What it actually has is a 130-page coalition agreement between the centre-right CDU/CSU parties and the centre-left SPD. This agreement still requires approval from full party congresses of all three parties, which are due to take place tomorrow, Monday. Not before time either. The process of hammering out a coalition deal has taken almost two full months since the general election back on 18th September.

The New York Times [registration required, but you can borrow one here] and Deutsche Welle both have good summaries of the new coalition agreement and the delicate talks and political machinations leading up to the announcement last Friday.

If the three party congresses sign off on the coalition agreement tomorrow, the stage is set for Angela Merkel to be voted in as Chancellor by the German parliament, the Bundestag, on 22nd November. The SPD has given assurances that, despite earlier suggestions to the contrary, its MPs will back Merkel as Chancellor. Accordingly, it now looks very likely that she will finally become Germany's first woman Chancellor
and the first Chancellor from the former East.

Even before it has been finally approved by the parties involved, the coalition agreement is coming under widespread criticism. Naturally, the opposition parties (the FDP, the Greens and the Left Party) have lambasted the new government's plans, but that is to be expected. More worrying for the incoming grand coalition is the fact that business leaders, economists, trade unions and large sectors of the press have all given the coalition agreement a frosty reception, each for differing reasons.

To be frank, I think the frosty reception is perfectly justified. While there are a few measures in the coalition agreement that I find positive, such as increased investment in research and education, the decision not to change the closure timetable for Germany's remaining nuclear plants (yet), and the removal of a number of tax loopholes, there are quite a number of areas in which the grand coalitions plans quite simply leave me shaking my head in wonder and exasperation.

Like, for example, the decision to increase the retirement age from 65 to 67, but so gradually that no one will actually be retiring at 67 until at least 2012. Why so slow? If the measure is necessary, let's get on with. Or the decision to tinker with the rules on probationary employment periods and job protection, without making it significantly easier for employers to hire and fire workers, which is one of the measures which I believe is required to speed up job creation.

Another example of a missed opportunity is the minimal increase in working hours for civil servants and state employees (a very broad category in Germany, encompassing teachers, academics, police etc. etc.) from 40 hours per week to 41. If you're going to make changes to employment conditions for these state employees, known as Beamte, why not start by making it possible to fire those who do not perform, so that the dead wood can be removed from the system and so that there is at least some motivation for them to achieve high standards? Or, gee, why not be really daring and actually ask them to contribute to their pensions, like other mere mortals have to?

In another area, while I don't have anything against the proposed "rich tax" on incomes over €250,000 per annum for singles or €500,000 per annum for couples per se, my concern is simply that it will encourage a number of the highest earners (and therefore largest contributors to taxation income) to take their money offshore. If that happens, the new tax could well end up being an own goal for the coalition government and could even lead to reduced tax takes.

As for the signalled 3% increase of Mehrwertsteuer (VAT/GST) from 2007, is that not going to prove counterproductive? Isn't it likely to cause people to tighten their belts still further and reduce spending at a time when what the government really requires is household spending to increase to get the economy moving again? I'm no economist, but I'd have thought so. It will certainly effect my spending decisions.

And finally, if you have a minimum €35 billion gap in your finances that you need to fill, is the best first step really to announce up to €25 billion of fresh spending initiatives? Somehow, I doubt it.

All in all, then, I'm not especially impressed with what I've seen of the grand coalition's plans for its time in government. One comfort, I suppose, is that there's every chance that the coalition won't last the full four year term and that Germans will be back at the ballot boxes long before 2009. Time will tell.