October 24, 2017 / 2:28 PM / 4 months ago

German parties in coalition talks agree on no new debt

BERLIN (Reuters) - Politicians from four German parties seeking to form a first-of-its-kind coalition government agreed on Tuesday not to increase the country’s debt load in order to fund sought-after tax cuts, subsidies and investments.

Chancellor Angela Merkel’s Christian Democrats (CDU), their Christian Social Union (CSU) allies, the liberal Free Democrats and the Greens held a second round of talks after an election last month that saw the far-right Alternative for Germany (AfD) enter parliament for the first time.

The four parties are under pressure to find common ground on contentious issues such as the future of the euro zone and immigration policy, as well as fiscal policy.

A paper seen by Reuters that outlines their initial agreement on state spending showed the potential coalition partners want to cut taxes for families with children as well as lower- and middle-income people.

They also want to abolish the “solidarity tax”, introduced after reunification to support poorer states in eastern Germany, which is due to expire in 2019.

The Greens, who before the talks said they opposed sticking to a balanced budget at any cost, appear to have conceded in exchange for a common pledge for subsidies to home owners who make their domiciles more energy efficient.

‘VERY SATISFIED’

Merkel’s CDU and their Bavarian CSU allies lost support in the election to the anti-immigrant AfD, as the party stole many conservative voters angry at her 2015 decision to welcome more than one million migrants into Germany.

Weakened after the Sept. 24 vote, Merkel is now seeking to form a four-way coalition untested at the national level that will secure her a fourth term as chancellor.

“We are very satisfied with the (talks) this evening,” CDU General Secretary Peter Tauber told reporters after the talks. “It was a very good evening.”

His positive assessment of the second round of exploratory talks was shared by counterparts from the CSU, FDP and Greens.

A report by Merkel’s CDU last week found that Germany’s next government would have less fiscal room than expected.

It also determined that the next government would have only 30 billion euros ($35.29 billion) free for new projects over the next four years if there is no new debt taken on - as has been the case since 2014.

The four parties’ demands amount to over 100 billion euros in additional spending.

The initial fiscal blueprint agreed on Tuesday did not say how the parties will fund their projects. It said they would explore fiscal flexibility measures at later rounds of talks.

Writing by Joseph Nasr, editing by G Crosse

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