Two months after election win in Germany, Angela Merkel forms coalition

Agreement with arch-rivals means introduction of minimum wage but higher taxes are ruled out

Berlin

Angela Merkel will return as German chancellor for a third term after she hammered out a coalition deal with her old Social Democrat (SPD) opponents that rolls back decade-old reforms of the welfare state but preserves Berlin’s strict approach towards its struggling European partners.

The agreement, spelled out in a 185-page policy document entitled “Shaping Germany’s Future”, was struck two months after Ms Merkel’s conservative Christian Union (CDU/CSU) emerged victorious from an election but fell short of a parliamentary majority. Its traditional coalition partner, the Free Democrats (FDP), won no seats, leaving Ms Merkel to look for a new partner in the Bundestag.

The 59-year-old pastor’s daughter from eastern Germany was forced to negotiate with her arch-rivals in the SPD, with whom she ruled in an awkward “grand coalition” during her first term between 2005 and 2009.

The SPD is still smarting from that experience and its leadership has agreed to put the new deal to a vote of the party’s 474,000 card-carrying members, adding an element of uncertainty to Ms Merkel’s goal of having a new government in place by Christmas.

“We entered negotiations with very different ideas and that is why things took a little time,” Ms Merkel told a news conference, sitting between the SPD chairman, Sigmar Gabriel, and Horst Seehofer, leader of the Bavarian Christian Social Union. Mr Gabriel said he was sure a “broad majority” of SPD members would back the deal in a postal vote, the results of which are due on 14 December.

All three politicians praised the atmosphere in the talks, with Mr Gabriel and Mr Seehofer joking with reporters about whether they could now address each other with the informal du in place of the formal sie.

The deal was greeted with a sigh of relief by investors, who pushed the euro to a four-year high against the Japanese yen and a one-month peak versus the US dollar. It was also welcomed by officials in Brussels and other European capitals. The lengthy talks have delayed movement on major European reforms, including progress on banking union, an ambitious project designed to prevent a recurrence of the eurozone’s crippling debt crisis.

“It’s positive news,” the Italian Prime Minister, Enrico Letta, said in Rome. “There’s a need for a German government as soon as possible.”

Ms Merkel stood firm against SPD demands for tax increases for the rich, but to clinch the deal she agreed to introduce a minimum wage of €8.50 (£7) per hour, which some economists have warned could push up unemployment. To reduce that risk, the parties agreed to phase it in over several years, with exceptions allowed until 2017.

The SPD also secured concessions from Ms Merkel on pensions and labour market rules, softening elements of reforms introduced a decade ago by Ms Merkel’s predecessor as Chancellor, Gerhard Schröder of the SPD. In the future, people who have worked for 45 years can earn full pensions from 63, four years earlier than the statutory 67-year threshold. The use of temporary workers by German firms will also be restricted to 18 months under the deal.

Hopes in France and other eurozone states that the SPD might convince Ms Merkel to adopt bolder measures to stimulate growth and tackle unemployment were dashed in an deal that endorsed her carrot-and-stick approach to the euro crisis. The coalition deal ruled out all forms of debt mutualisation.

Reuters

Life & Style
Sampling wine in Turin
food + drink...and abstaining may be worse than drinking too much, says scientist
Arts & Entertainment
Kingdom Tower
architecture
Sport
Jose Mourinho restrains his assistant manager Rui Faria, Fabio Borini celebrates his winning penalty and Connor Wickham equalises for Sunderland
sportChelsea 1 Sunderland 2: Deafeat is extra bitter as former Chelsea player Fabio Borini scores late penalty to seal victory
Arts & Entertainment
Game of Thrones writer George R.R. Martin has been working on the novels since the mid-Nineties
books
VIDEO
News
Easter a dangerous time for dogs
these are the new ones. Old ones are below them... news
News
Brand said he
people
Sport
Roger Federer celebrates his victory over Novak Djokovic in the Monte Carlo Masters
sport
Voices
Actor Zac Efron
voicesTopless men? It's as bad as Page 3, says Howard Jacobson
Arts & Entertainment
The monster rears its head as it roars into the sky
film
Voices
For the Love of God (2007) The diamond-encrusted skull that divided the art world failed to sell for
its $100m asking price. It was eventually bought by a consortium
which included the artist himself.
voicesYou can shove it, Mr Webb – I'll be having fun until the day I die, says Janet Street-Porter
Extras
indybestFake it with 10 best self-tanners
Arts & Entertainment
Madonna in her music video for 'Like A Virgin'
music... and other misheard song lyrics
News
Much of the colleges’ land is off-limits to locals in Cambridge, with tight security
educationAnd has the Cambridge I knew turned its back on me?
News
peopleOrlando Bloom the pin-up hero is making a fresh start
News
Who makes you happy?
happy listSend your nominations now for the Independent on Sunday Happy List
Independent
Travel Shop
the manor
Up to 70% off luxury travel
on city breaks Find out more
santorini
Up to 70% off luxury travel
on chic beach resorts Find out more
sardina foodie
Up to 70% off luxury travel
on country retreats Find out more
Have you tried new the Independent Digital Edition iPad app?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs General

Apprentice IT Technician

£150.00 per week: QA Apprenticeships: This company is a company that specializ...

1st Line Technical Service Desk Analyst IT Apprentice

£153.75 per week: QA Apprenticeships: This company is an innovative outsourcin...

1st Line Helpdesk Engineer Apprentice

£150.00 per week: QA Apprenticeships: This company has been providing on site ...

Sales Associate Apprentice

£150.00 per week: QA Apprenticeships: We've been supplying best of breed peopl...

Day In a Page

How I brokered a peace deal with Robert Mugabe: Roy Agyemang reveals the delicate diplomacy needed to get Zimbabwe’s President to sit down with the BBC

How I brokered a peace deal with Robert Mugabe

Roy Agyemang reveals the delicate diplomacy needed to get Zimbabwe’s President to sit down with the BBC
Video of British Muslims dancing to Pharrell Williams's hit Happy attacked as 'sinful'

British Muslims's Happy video attacked as 'sinful'

The four-minute clip by Honesty Policy has had more than 300,000 hits on YouTube
Church of England-raised Michael Williams describes the unexpected joys in learning about his family's Jewish faith

Michael Williams: Do as I do, not as I pray

Church of England-raised Williams describes the unexpected joys in learning about his family's Jewish faith
A History of the First World War in 100 moments: A visit to the Front Line by the Prime Minister's wife

A History of the First World War in 100 moments

A visit to the Front Line by the Prime Minister's wife
Comedian Jenny Collier: 'Sexism I experienced on stand-up circuit should be extinct'

Jenny Collier: 'Sexism on stand-up circuit should be extinct'

The comedian's appearance at a show on the eve of International Women's Day was cancelled because they had "too many women" on the bill
Cannes Film Festival: Ken Loach and Mike Leigh to fight it out for the Palme d'Or

Cannes Film Festival

Ken Loach and Mike Leigh to fight it out for the Palme d'Or
The concept album makes surprise top ten return with neolithic opus from Jethro Tull's Ian Anderson

The concept album makes surprise top ten return

Neolithic opus from Jethro Tull's Ian Anderson is unexpected success
Lichen is the surprise new ingredient on fine-dining menus, thanks to our love of Scandinavian and Indian cuisines

Lichen is surprise new ingredient on fine-dining menus

Emily Jupp discovers how it can give a unique, smoky flavour to our cooking
10 best baking books

10 best baking books

Planning a spot of baking this bank holiday weekend? From old favourites to new releases, here’s ten cookbooks for you
Jury still out on Manchester City boss Manuel Pellegrini

Jury still out on Pellegrini

Draw with Sunderland raises questions over Manchester City manager's ability to motivate and unify his players
Ben Stokes: 'Punching lockers isn't way forward'

Ben Stokes: 'Punching lockers isn't way forward'

The all-rounder has been hailed as future star after Ashes debut but incident in Caribbean added to doubts about discipline. Jon Culley meets a man looking to control his emotions
Mark Johnston: First £1 million jackpot spurs him on

Mark Johnston: First £1 million jackpot spurs him on

The most prize money ever at an All-Weather race day is up for grabs at Lingfield on Friday, and the record-breaking trainer tells Jon Freeman how times have changed
Ricky Gervais: 'People are waiting for me to fail. If you think it's awful, then just don't watch it'

Ricky Gervais: 'People are waiting for me to fail'

As the second series of his divisive sitcom 'Derek' hits screens, the comedian tells James Rampton why he'll never bow to the critics who habitually circle his work
Mad Men series 7, TV review: The suits are still sharp, but Don Draper has lost his edge

Mad Men returns for a final fling

The suits are still sharp, but Don Draper has lost his edge
Google finds a lift into space will never get off the ground as there is no material strong enough for a cable from Earth into orbit

Google finds a lift into space will never get off the ground

Technology giant’s scientists say there is no material strong enough for a cable from Earth into orbit