Merkel's coalition faces barrage of criticism for tax rises and budget cuts

Germany's chancellor-designate, Angela Merkel, faced a barrage of criticism over her future government's economic reforms yesterday, prompting speculation that her grand coalition with the Social Democrats would not last its four-year term.

Leading figures from her own conservatives and senior members of their Social Democrat coalition partners heaped scorn on Ms Merkel's plans to raise taxes and cut subsidies under a deal reached between the two parties on Friday that will form the basis of the next government.

The Social Democrats and Ms Merkel's Christian Democrats will vote on the grand coalition agreement at separate party conferences today. Most observers predicted that the rank and file of both parties would also be highly critical of the deal, although they would eventually approve it.

Announcing the measures, which include a highly controversial 3 per cent VAT increase, Ms Merkel insisted that they aimed to "stop Germany's downward economic trend and reverse it". She added: "We will not shrink from doing what we consider right."

But yesterday Germany's politicians followed business leaders, trade unionists and pensioners' groups in attacking her reform programme. "I don't see that this will bring about a breakthrough for Germany," said Dietrich Austermann, a senior conservative. "The VAT increase will weaken consumer demand, lead to more black market jobs and burden the weak," he added.

Friedrich Merz, a conservative finance expert, added: " I can't see any conservative influence in these proposals at all. They are Social Democrat ideas."

Wolfgang Clement, the departing Social Democrat Economics Minister, accused the coalition negotiators of succumbing to the "poison of VAT increases".

The criticism followed bitter attacks by the media. The mass-circulation Bild newspaper branded the prospective government "liars" who were "helping themselves from those who can't defend themselves".

Ms Merkel's government plans to raise VAT from 16 to 19 per cent from 2007 to offset the country's high unemployment insurance contributions. Other measures include plans for a "rich tax" for high earners, subsidy cuts for commuters and home owners, an increase in pension contributions and plans to raise the retirement age from 65 to 67. Most business leaders have condemned the measures, claiming they will do little to tackle Germany's economic problems or reduce the 11 per cent unemployment burden.

Party backing for the agreement will open the way for the coalition to be sworn in on 22 November.

The coalition negotiators have claimed that the "forced marriage" of the two parties will enable their government to tackle Germany's pressing economic problems more effectively than previous administrations. But critics argue that the compromises the two parties have already been forced to make will either result in a weak government or bring about its collapse.