Germany’major parties will face their first tough test when the deal on the country’new political coalition is put to the rank and file for approval.
If it’s agreed, Angela Merkel will be elected as Germany’first female chancellor by the Bundestag later this week.
But many Social Democrats are angry about a proposed three point hike in VAT due in 2007 – said to be the biggest single tax increase in German post-war history.
The head of the Federation of German Chambers of Commerce says consumer spending will be affected.
Merkel argues that the reforms are necessary to cut unemployment costs and bring down the budget deficit.
She admits the average German will find the tax increases hard to bear. The German economy, the biggest in the European Union, is hampered by high unemployment and near-zero growth.
Critics say the new deal will do little to put the stalled economy back on track.