Coalition deal agreed in Germany ahead of uncertain SPD vote

Germany’s centre-left Social Democratic Party (SPD) has secured the foreign and finance ministries – and with them, the prospect of Berlin backing for expansionary EU reform – as its price for entering a third grand coalition with Angela Merkel.

After their second 24-hour negotiating marathon in a month, the SPD and Dr Merkel’s centre-right Christian Democrat (CDU/CSU) alliance announced an agreement just before 10am local time on Wednesday.

The final word now goes to more than 460,000 SPD members in a postal vote, with a result expected in about two weeks. A positive vote would see a new government before Easter; a negative vote would force Dr Merkel into a minority government and, sooner rather than later, fresh elections.

Anxious to avoid such a development, Dr Merkel said the 177-page coalition paper offered the “basis for a good and stable government, which our country needs, and which many around the world expect from us”.

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After years of belt-tightening resulted in a balanced budget but creaking infrastructure, the grand coalition agreement contains a total of €46 billion to boost spending on welfare, social housing, education and old-age care as well as transport and digital infrastructure.

Looking beyond the domestic horizon, SPD leader Martin Schulz said the coalition agreement would “change fundamentally” Berlin’s engagement with its EU partners.

“We will return to an active and leading role in the EU and I hope this forms the basis of a closely-integrated co-operation with . . . Paris,” he said.

On September 24th last German voters handed the outgoing coalition partners of CDU/CSU and SPD their worst election results since 1949.

A stunned Mr Schulz insisted on election night his party would enter opposition and that he would never serve in a Merkel cabinet.

Double U-turn

Performing a double U-turn now, Mr Schulz is tipped for the foreign ministry. And a year after he was elected leader as a political messiah with 100 per cent support, he is reportedly handing the reins to Bundestag parliamentary party leader Andrea Nahles.

Meanwhile, Hamburg’s SPD mayor Olaf Scholz is set to reclaim the crucial finance portfolio for his party for the first time since 2009.

This underscores an SPD determination to, as Mr Schulz put it, break the Merkel “austerity diktat” in Europe and back French plans for a European investment programme.

A possible return of Mr Scholz to Dr Merkel’s cabinet as finance minister and deputy chancellor – he was her first labour minister in 2005 – is a step up for the 59 year-old who belongs to the SPD’s conservative wing.

His politics suggest evolution rather than revolution looms in Berlin’s shift from the balanced budgets in the Wolfgang Schäuble era to a greater readiness for EU investment and stimulus.

Despite his cabinet veto, Mr Scholz will have to work closely with Dr Merkel on plans to transform the ESM bailout fund into a full-time European Monetary Fund.

The proposal has sparked alarm – and will meet resistance – among CDU conservatives who fear EU investment will herald a spending free-for-all, bankrolled by Berlin.

After 19 weeks of exhausting, on-off negotiations, Dr Merkel and her Christian Democratic Union (CDU) are a diminished force in the government: as well as the chancellery, it has secured the economics, defence, education and health portfolios.

“I’ll admit that the question of who got which portfolio was anything but easy,” admitted Dr Merkel.

CSU boost

Her Bavarian sister party, the Christian Social Union (CSU), received a boost by snagging the interior ministry to oversee the hot-button immigration issue with an additional homeland security component.

The Bavarians also retain development and transport, despite criticism of CSU handling of “dieselgate” – the Volkswagen emissions scandal.

Aware her political fate hangs in the balance, Dr Merkel loosened Berlin’s purse-strings to woo SPD support.

The next German government – and Dr Merkel’s fourth term as chancellor – hinges now on a postal vote of SPD members after constitutional court challenges were dismissed on Wednesday.

SPD youth leader Kevin Kühnert, a lead campaigner against another grand coalition, said the coalition agreement left him “speechless”.

His party secured limited measures to reduce temporary work contracts, but failed to end two-tier healthcare or prevent tougher rules to reunite refugees with their families in Germany.

In the 177-page document, Brexit was mentioned in just 32 words.