During the campaign they highlighted their differences and their contradictory policies. Now Germany’s Conservatives and the Social Democrats have to admit that their parties, so strongly opposed to one another, are in fact capable of forming a strong and unified government. One point on which the SPD and the Conservatives have already agreed is the issue of the state deficit.
Angela Merkel has indicated that she wants to bring the country’s budget closer to the three percent limit of Gross Domestic Product required in the euro zone. This gives little scope for state spending to reduce taxes as the SPD had hoped. The “Koch Steinbruck” list, a policy named after its authors, one a Social Democrat minister and one a Conservative, could be brought back into use. This, echoing Merkel’s wishes, suggests the closing of possible tax loopholes. The Conservatives however would have to abandon their proposed rise in VAT, something which the SPD is totally against. Both sides agree that corporate taxes should be reduced. Observers say employment could suffer under the coalition as reforms recommended by economists will probably not happen. Merkel wanted a suspension in legal protection against dismissal in companies with a staff of 20 or under. That is something the SPD does not want to hear about. The Socialists had been willing to introduce a diluted version of such reforms. They were wary of union warnings that anything heavier could result in nationwide strikes. Health is a major sticking point between the two groups. The SPD wants to see social contributions that are in line with an individual’s revenue, while the CDU would prefer to introduce a radical reform that would see everyone paying an equal sum, irrespective of income. The most likely outcome is that little will change. Small concessions from each party are possible but this is perhaps all that can be expected. As for foreign affairs, Merkel is expected to bring US-German relations closer following the rift that developed when Berlin refused to send troops to Iraq. In relation to Turkey, it is not clear how the two sides will find a compromise in their contradictory positions. Merkel would like a partnership with Turkey but does not want it to have full EU membership – something Schroeder advocates.