BERLIN, Oct 13 (Reuters) - German coalition talks between Chancellor Angela Merkel’s conservatives and the Free Democrats (FDP) are in a crucial phase with working groups trying to bridge differences on a range of policy issues.
Merkel and other party leaders will participate in what could be a final round of negotiations this weekend to agree a policy blueprint that will guide a new centre-right coalition that is expected to take power by next month.
Below are the key policy areas where compromises must be reached:
* Merkel’s conservatives campaigned on a pledge of tax cuts worth 15 billion euros ($22.23 billion) but remained vague on when to implement them, while the FDP promised tax cuts worth up to 35 billion euros and said they wanted to move fast.
* Since the talks began, senior FDP politicians have admitted publicly that Germany’s strained finances will make it difficult to pursue the tax cuts they campaigned for, suggesting the total amount of tax relief will be closer to the level the conservatives pushed for.
* The FDP is expected to win conservative agreement on simplifying German tax brackets, but that reform seems likely to be phased in over the course of the 4-year legislative period.
* This would allow for a phasing in of tax relief rather than the “big bang” reform the FDP had originally wanted, with modest relief starting in 2011 and bigger cuts in 2012 and 2013.
* Merkel’s conservatives want to reduce the deficit but she has resisted pressure from some in her party, including Hesse state premier Roland Koch, for aggressive cuts in spending.
* Some in her party have mooted raising sales tax towards the end of the legislative period if the economy is buoyant but Merkel has publicly dismissed this idea.
* Some in the FDP are talking about making savings on military projects, possibly on the third tranche of Eurofighter or on the A400M military transporter.
* Plans to raise child support funding and tax breaks for families appear to have been shelved due to concerns about the deficit.
* A privatisation of Deutsche Bahn, the railway, could come back on the agenda soon, although the parties are unlikely to fix a timeframe for an IPO in their coalition agreement.
* Merkel’s conservatives have ruled out any changes to the minimum wages the outgoing government agreed for some sectors.
* The parties also disagree on job protection rules. The FDP wants to make it easier for firms to hire and fire but the conservatives strongly oppose this. The FDP has signalled a readiness to compromise, with one senior party official saying it is not a top priority — an indication there may be no change.
* The FDP has also said it wants to overhaul “co-determination” rules which give workers a seat on company boards, a move conservatives have so far resisted.
* Both parties have said they will look to extend the lives of Germany’s 17 nuclear plants, but there are differences over how quickly to move on this. Sources have told Reuters that Merkel wants to postpone any nuclear extension until after a state election in North Rhine-Westphalia in May 2010, but some FDP members want quicker action.
* The parties are likely to stress that the safety of nuclear plants is of paramount importance and put strict conditions on extending their lives.
* Power companies will likely have to make concessions in exchange for longer plant life cycles.
* The FDP is keener than the conservatives to reduce high state-mandated feed-in tariffs for renewable energy. A review of these tariffs could also be delayed until 2010 and the coalition agreement is likely to remain vague on any cuts. (Writing by Paul Carrel and Erik Kirschbaum)