September 28, 2009 / 2:59 AM / 10 years ago

Merkel signals cautious reforms in new coalition

BERLIN (Reuters) - German Chancellor Angela Merkel signaled on Monday she would resist pressure for radical reforms from her likely new coalition partners, the pro-business Free Democrats (FDP), and stick to a path of gradual change.

Angela Merkel, German Chancellor and leader of the conservative Christian Democratic Union party (CDU) and Schleswig-Holstein's federal state premier Peter Harry Carstensen arrive for a news conference at the CDU party headquarters in Berlin September 28, 2009. REUTERS/Fabrizio Bensch

In Sunday’s federal election, Merkel’s conservatives won a parliamentary majority with the FDP, her partner of choice, which brings to an end her awkward four-year partnership with the Social Democrats (SPD).

Merkel, who had a one-hour meeting with FDP leader Guido Westerwelle on Monday, told ZDF television she wanted the new government to be in office by November 9, the 20th anniversary of the fall of the Berlin Wall.

The two camps have said they will start negotiations soon on sealing a center-right coalition deal, which will include tax cuts for Europe’s biggest economy, but the talks could be tough as the FDP has more ambitious plans than Merkel’s conservatives.

Potential areas of conflict include the scale and timing of tax cuts, how to curb a bulging budget deficit, and FDP proposals to make it easier to hire and fire workers.

Merkel made it clear she would not shift far to the right.

“You know me. I have been like this for some time. I do a bit for everyone but I do not change with the colors of a coalition,” she told reporters, adding the conservatives wanted to be the main party of the center.

While governing with the SPD in the past four years, Merkel has shifted leftwards and abandoned the bold plans for economic reforms she had campaigned on in the 2005 election.

Economists welcomed the result, saying it would herald pro-market policies, and Germany’s blue chip DAX stock market index rose 2.78 percent.

“We would expect both parties to agree on a cautious reform approach with respect to the labor market and the social security system,” said Goldman Sachs economist Dirk Schumacher in a research note.

“The FDP will certainly push .. for more reforms but Merkel’s reform appetite seems limited,” he added.


The FDP, last in government under Helmut Kohl until 1998, is likely to get three or four ministries. Traditionally it has controlled the foreign, economy and justice portfolios.

Merkel said late on Monday it was “generally expected” that the FDP would occupy the Foreign Ministry, although she declined to comment on other cabinet posts.

Buoyed by its best ever performance in a federal election, the FDP is likely to make hefty demands of the conservatives.

Westerwelle refused to be drawn when reporters peppered him with questions on policy issues at a news conference, dodging them and referring repeatedly to his party’s election program.

“We won’t get big heads. We will work solidly. We will focus our work on what is best for our country and people,” he said.

If Westerwelle becomes foreign minister, his party could seek to temper Merkel’s opposition to Turkey joining the European Union. A senior foreign policy spokesman for the FDP told Reuters Television Turkey deserved an opportunity to fulfill the EU’s criteria, even if it took years.

Merkel said she was committed to her party’s election promise of tax cuts worth 15 billion euros ($22.03 billion), but she refused to set a timetable due to weak public finances.

The FDP has more ambitious ideas, having waged its campaign on quick tax cuts worth 35 billion euros, and senior party members indicated they were determined to push them through.

“The voters expect it of us, we cannot chicken out,” Hermann Otto Solms, the FDP’s finance spokesman, told Der Spiegel magazine.

He said the plans were affordable and spending cuts might be needed to rein in the budget deficit, forecast to rise to 6 percent of gross domestic product in 2010.

Other priorities for the FDP were making it easier for firms to hire and dismiss workers, and shedding state holdings in firms such as rail operator Deutsche Bahn.

Merkel said she would try to find a way to extend the life of Germany’s nuclear power plants, scheduled to close over the next decade. Shares in nuclear operators E.ON and RWE rose by 4.5 and 4.2 percent respectively.

Slideshow (8 Images)

Preliminary official results put Merkel’s conservative bloc, the CDU and Bavarian Christian Social Union (CSU), on 33.8 percent, their second-worst postwar result, down from 35.2 percent in 2005.

The FDP offset the losses, surging to 14.6 percent, its best ever score, and putting the center-right ahead.

The SPD was the biggest loser and will join the Greens and Left party in opposition after plummeting more than 11 points to 23.0 percent, its worst result since World War Two.

Editing by Mark Trevelyan

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