September 23, 2009 / 11:55 AM / in 9 years

FACTBOX: Achievements, failures of Merkel's grand coalition

BERLIN (Reuters) - German Chancellor Angela Merkel runs for re-election on Sunday and hopes to win enough votes to end her “grand coalition” with the Social Democrats (SPD) and share power the pro-business Free Democrats (FDP).

Below are the main achievements and failures of the left-right partnership which has governed Germany since 2005.

FINANCIAL/ECONOMIC REFORMS

- It introduced the biggest tax rise in post-war Germany in January 2007 by increasing sales tax three percentage points to 19 percent to ease the strain on public finances.

- It succeeded in reining in a ballooning budget deficit to meet the EU’s targets in 2006 and made much progress in its aim to balance the budget before the economic downturn hit. Now the government expects the public sector deficit to swell to some 6 percent of GDP next year, double an EU ceiling.

- The government raised the pension age to 67 from 65 to help offset the rising costs of its aging population.

- Other steps included a corporate tax reform to help firms and an extension of jobless benefits which unwound some labor market reforms brought in by the previous SPD-Greens government. It has extended a minimum wage to new sectors of the economy.

HEALTH REFORM

- Seen as one of its biggest failures, the grand coalition delivered a messy compromise on a health reform aimed at tackling ballooning costs and bureaucracy.

- It has introduced a centralized fund to pool and distribute contributions from workers to health insurers and the government also contributes a limited amount of tax money. But the fund already has a deficit of 3 billion euros and has been criticized for doing little to improve the system’s funding problems and failing to ease the burden on workers.

FOREIGN POLICY

- Led by Merkel, the coalition mended ties with the United States which were badly damaged over the Iraq war.

- She has taken a critical approach toward Russia and China on human rights and caused outrage in Beijing in 2007 by meeting the Dalai Lama. Ties have since thawed.

- Germany sent a naval deployment to the Lebanese coast as part of a U.N. peacekeeping mission in 2006 after Israel’s war with Hezbollah. It is the first time Germany has got involved militarily in the Middle East since World War Two.

- It has boosted the number of German troops in NATO’s Afghanistan mission to about 4,200 but resisted pressure to send soldiers to the more dangerous south of the country and is now talking about how to transfer responsibility to Afghan forces.

- Merkel earned respect within the EU for her 6-month stint as president during which she got member states to agree to tackle climate change and laid the groundwork for members to agree on a reform treaty to ease decision-making in the bloc.

CLIMATE CHANGE

- At a Group of Eight industrialized nations summit in 2007, Merkel brokered a deal to “seriously consider” carbon emissions cuts of 50 percent by 2050 which laid the foundations for a more ambitious agreement in Italy this year.

- The coalition also introduced steps for Germany to help reduce CO2 emissions by about 36 percent by 2020 compared with 1990 levels and introduced a goal to boost renewable power.

RESPONSE TO FINANCIAL CRISIS

- Germany drew criticism from other countries for being slow to respond to the financial crisis. But the coalition passed two stimulus programs worth a total of 81 billion euros ($119.9 billion). Although the downturn has hit Europe’s biggest economy hard, it emerged from recession in the second quarter.

- One of the most effective steps was a scheme to boost new car sales by offering incentives for scrapping old cars which has buoyed the auto sector and been copied by other countries.

- However, there has been more criticism of the coalition’s attempts to restructure its banking system. Critics accuse Germany of being slower than other leading economies to help banks through the crisis. It has set up a 500 billion euro banking rescue fund to boost liquidity and a “bad bank” plan to relieve banks of their toxic assets.

- The public-owned Landesbanks still face problems, however, and critics say the next government might have to devote more resources to bailing them out.

Compiled by Madeline Chambers

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