The five biggest obstacles to German coalition talks
What’s the last one?
On Friday, the pro-business Social Democrats (SPD), Greens and Free Democrats (FDP) leadership and chancellor candidates unveiled their initial deal which they hope will form the basis of coalition talks . They want to form a tripartite constellation for the German government.
The SPD approved that they were happy to take the next step on Friday, while the Greens agreed on Sunday after a vote. The The FDP is expected to decide whether it wants to participate in the negotiations on Monday, but the party, led by Christian Lindner, is widely expected to give the green light to the negotiations.
If all goes as planned, formal negotiations for the coalition “at the traffic lights” – named after the red, green and yellow parties colors – will start in the coming weeks. SPD chancellor candidate Olaf Scholz aims to form a government by Christmas, in just over two months.
Do they agree on anything?
Yes, apparently. The business-friendly FDP is not a natural partner for the SPD or the Greens, who stand on the left, but we have seen a first glimpse of what a new government between the three parties might look like. They made an initial deal, which included plans for a â¬ 12 minimum wage, changes to immigration and citizenship laws, and a massive climate-friendly overhaul.
READ ALSO: KEY POINTS: what the three German parties in the coalition talks agreed
Still, there are bound to be sticking points, and parties will desperately seek to pull policies in their direction. Here is what could upset the united front.
(article continues below)
See also on The Local:
Obstacle 1: The debt brake
For the coming year, Germany’s famous debt brake rule, which prohibits the government from borrowing more than 0.35% of gross domestic product (GDP) in a year, has been suspended due to the cost of the Covid pandemic. The grand coalition’s draft budget so far provides for new debt of 100 billion euros.
This extra large cushion can certainly be used to pre-finance some of the major investments planned for the future. But can it really finance plans for the development of renewable energies at record speed, for the conversion of electricity networks and infrastructure in order to make the entire industry climate neutral by 2045?
The Greens also want an accelerated exit from coal energy, which is to be brought forward eight years to 2030.
On Friday, the SPD, the Greens and the liberal FDP committed massive investments to make Europe’s leading economy greener and more digital, but “Within the framework of the constitutional brake on debt”. However, when it comes to deciding how to budget for 2023 – the year in which the debt brake will be restored – there could be a lot of rows.
Obstacle 2: The search for money
This leads us to look for where to find the money to do everything.
SPD co-leader Norbert Walter-Borjans told Bild am Sonntag that the new government “will fight tax evasion and money laundering even more and close tax loopholes”, explaining how the financial dilemma could be. resolved.
But in the fight against tax evasion – each year the Treasury loses around 50 billion euros – thousands of vacant posts in tax offices should be filled and the money laundering unit at customs should be strengthened to help deal with it.
The last coalition agreement between the CDU / CSU and the SPD already stated: âWe want to fight effectively and without bureaucracy against tax evasion, tax evasion, unfair tax competition and money laundering in national frameworks, European and international â.
READ ALSO: Germany cuts electricity surcharge as prices soar
Attempts will likely be made to resolve cash flow issues through subsidiary budgets, for example with a multibillion dollar investment and funding offensive by the state-owned KfW bank. To finance the restructuring of the economy and industry, climate-damaging subsidies must also be removed – and this could hit German automakers in particular, while US electric car company Tesla is said to be the winner, writes the Berlin newspaper the Tagesspiegel.
Obstacle 3: The large industrial project
The situation is worsened by the objective of climate neutrality (by 2045, Germany aims to become neutral in greenhouse gases), the completion of the phase-out of nuclear power by the end of 2022 and the phase-out of coal desired by the Greens, ideally by 2030. In affected German regions, such as North Rhine-Westphalia, this has led to uncertainty over people’s lives and livelihoods. And where will electricity come from, especially since demand has increased sharply? At the moment, there is no real plan.
The whole industry will have to convert its processes. The steel, chemical and cement factories will have to produce mainly using hydrogen within the framework of these plans. In the future, cars will have to run mainly on electricity. To achieve this, wind and solar power must be developed at an unprecedented rate and new power grids, as well as hydrogen pipelines, will need to be built. Gas will remain a transitional technology, which in turn could exacerbate dependence on Russia.
At the same time, German residents with high electricity bills or high fuel prices cannot sink into poverty – but what form state compensation should take here is still completely open.
So far, politicians have not had a well-thought-out plan for “the biggest modernization project in the last 100 years,” as SPD candidate for Chancellor Scholz called it.
It will take a lot more discussion of the ins and outs of this project – and there will undoubtedly be some serious clashes.
Obstacle 4: fear of rising prices
The cost of living increases considerably in Germany for ordinary people.
The price of a liter of super gasoline is around two euros in many places. The cost of fruits, vegetables, pasta and meat shows inflation on each receipt. The situation will worsen due to extremely high gas prices in winter and rising heating costs. This means that coalition talks will face immediate action – even if economists expect less inflation for the year ahead.
READ ALSO: Why Is Everything In Germany Suddenly So Expensive?
It is also the fundamental question: how to avoid further divisions in society? The youth wing of the SPD (Jusos) and the rest of the left of the party are already scolding over the initial agreement that would not see tax hikes on the rich in order to relieve the popular and middle classes.
The SPD and the Greens wanted to increase the tax rate for high incomes (those who earn â¬ 100,000 and more) from 42% to 45% and reintroduce the wealth tax. This was a key promise, especially as many fortunes grew during the pandemic as millions of people had reduced hours or lost their jobs.
Yet on Friday, parties agreed not to raise taxes during their tenure – a victory for the pro-business FDP who refused to increase any tax burden on taxpayers.
Perhaps, however, the inheritance tax, which is not mentioned in the scoping paper excluding tax increases, could be a lever to raise more money here; for example, by closing the loopholes.
According to the ZDF political barometer, 75% of Germans are in favor of reducing the tax burden on very high incomes.
5th obstacle: the future of pensions
Germany is in a delicate position. As Germans live longer with fewer children – and baby boomers retire – the demographics of society are changing dramatically. While the proportion of people of working age to retirees is currently three to one, it is expected to rise to three to two by 2060.
This means that there are fewer and fewer people of working age contributing to the state pension system to support the payments of a growing population of retirees.
One way the parties want to tackle this problem is to have more skilled workers from abroad – and all parties agree to make it easier for skilled people to move to Germany.
READ ALSO: What the German Coalition for Immigration and Citizenship Plans Mean
But the coalition parties in their original deal also offered an âequity pensionâ based on the Swedish model – and that’s a victory for the FDP.
The deputy head of the FDP, Johannes Vogel, is one of the brains. âIn order to prepare the German pension system for the future, we need a big boost,â he stressed in an article for the Deutsches Aktieninstitut.
âTherefore, we suggest following the Swedish example. Sweden introduced a new element in the pension system at the end of the 90s with the âAP7 Fundâ. This fund invests its capital in equities, mainly through global index funds.
The target in Germany is for insured employees to pay around 2% of their gross salary into a new capital pension fund and around 16.6% into a pay-as-you-go system, divided into employee and employer contributions.
“We will also allow the German Pension Insurance Fund to invest its reserves in the capital market in a regulated manner,” the scoping document said.
But even though the risks are much lower with index funds, if there are significant declines in the financial markets, it can lead to retirement losses. This could then quickly lead to upheaval, which is why the design can be even more complicated than it seems at first glance.