New German Gov't Aims to Mend Ties With U.S.
{{#rendered}} {{/rendered}}Chancellor-designate Angela Merkel pledged Saturday that her new government would work to reverse Germany's troubled economy and not shrink from "doing what we consider right," amid criticism of plans to raise taxes.
Merkel — poised to become Germany's first female chancellor — presented the 143-page coalition accord her conservatives reached Friday with the center-left Social Democrats after weeks of talks. Their alliance is Germany's first "grand coalition" of the nation's two biggest parties since 1969.
"We know that we are asking things of people in this country with this accord," Merkel told a news conference. She said her government would act on an "honest analysis" of Germany's problems "to do something for this country."
{{#rendered}} {{/rendered}}Abroad, part of Merkel's agenda will be to mend ties with the United States, damaged by outgoing Chancellor Gerhard Schroeder's stark opposition to the war in Iraq.
At home, Germany struggles with an unemployment rate of 11 percent and a chronically sluggish economy. Both have weighed heavily on public finances, producing the new government's other major problem: a gaping budget shortfall of $41 billion.
"Our aim is to stop this downward trend and reverse it," Merkel said.
{{#rendered}} {{/rendered}}"We want to give people hope of having jobs," she said. "I am absolutely certain — I know — that the success of this coalition will be measured by the question: Are there more jobs?"
The new government will loosen rigid laws that make it difficult to fire workers, rules that industry says discourage hiring. New hires will enjoy legal protection from dismissal after two years, rather than six months at present.
"Naturally, this was not easy for us, but we see the need to do something here," said Social Democratic chairman Franz Muentefering, Merkel's designated vice chancellor and labor minister.
{{#rendered}} {{/rendered}}An increase in value-added tax, to 19 percent from 16 percent in 2007, will be used partly to cut a payroll levy for unemployment insurance. However, much of the money will go to shore up the budget, and contributions to the state pension system also are to rise.
Other measures will include eventually raising the retirement age and cutting a wide range of subsidies.
The conservatives fulfilled the Social Democrats' demand for a higher income tax for top earners. That will mean a new top tax rate of 45 percent, compared with the current 42 percent.
{{#rendered}} {{/rendered}}Industry and labor leaders have expressed concern that the tax hikes will dim hopes of a recovery, and German media gave the accord a scathing reception Saturday.
"The two big parties, which with decades of doing nothing, have led the country to the verge of bankruptcy (and) are now helping themselves from creditors who cannot defend themselves: our citizens," the tabloid Bild, which has long-advocated tax cuts, said in an editorial.
Opposition leaders also charged the two main parties with betraying voters. "The grand coalition of those who lost the election will make many people in this country losers as well," Greens party leader Claudia Roth said.
{{#rendered}} {{/rendered}}The deal still needs endorsement Monday from Merkel's Christian Democratic Union, its Bavaria-only Christian Social Union sister party and the Social Democrats of outgoing Chancellor Gerhard Schroeder.
That would allow parliament to elect Merkel on Nov. 22 as the head of only the second "grand coalition" in German history.
The two sides were forced into talks on a "grand coalition" after neither won a majority in Sept. 18 elections to govern with their preferred smaller partners.
{{#rendered}} {{/rendered}}But party leaders insist the forced marriage, which has an overwhelming majority in parliament, would be good for Germany.
"We want to use these four years to make Germany stronger for the future," said Matthias Platzeck, expected to take over as Social Democratic chairman next week.