German parties agree on grand coalition terms

GERMAN Chancellor Angela Merkel’s centre-right party yesterday secured a deal with the country’s social democrats for the formation of a new government, after months of negotiations.

The deal’s terms include a minimum wage and a lowering of the pension age for workers who have contributed since age 18. However, the centre-left party must first ballot its members.

As yet, no ministers in the new government have been confirmed. Joerg Asmussen, current board member at the European Central Bank, was tipped for a post, but recently insisted that he will keep his monetary policy role.

Berenberg’s Christian Schulz commented: “The roll-back of labour market reforms and the spending increases may come back to haunt Germany in the next downturn.”

A survey of consumer confidence in the robust German economy indicated that sentiment is still improving in the European powerhouse. Gfk’s index rose to 7.4 for November, the highest level since 2007, and up from 7.1 last month.

SIX KEY TERMS OF GERMANY’S DEAL

1 An €8.50 (£7.08) an hour minimum wage, which was one of the Social Democratic Party’s main manifesto pledges, will be implemented. Germany does not have a uniform minimum wage, but many sectors are covered by collective wage agreements. A recent report produced by economic institutes warned the minimum wage could have a negative effect in east Germany’s weaker labour market.

2 The parties agreed to a system of rent controls, allowing regions to cap increases in rents, preventing them from raising the price more than 10 per cent above the local level.

3 The standard German pension age is currently 67, but workers will now be able to retire at only 63, as long as they began work at 18 and have made 45 years worth of pension contributions.

4 On banking, the grand coalition will back a European financial transaction tax and support the increased separation of retail and investment banking. There also seems to be an agreement to support direct recapitalisation of failing banks through the European stability mechanism, after bail-in and state bailout programs have been exhausted.

5 The new government will hike infrastructure spending by €23bn. Despite this, the social democrats have agreed that there will be no new taxes, and borrowing will not be increased.

6 There will be a new target for renewable energy, with an aim to reach 45 per cent of the country’s production by 2025. The social democrats previously advocated charging utility companies for the cost of shutting down nuclear power stations.

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