Kohl sets out to build job coalition over jobs crisis

Bonn - Germany's government and opposition pushed off into uncharted waters yesterday, unsure whether their emergency tax-reform talks will lead to a "grand coalition", or mark the start of a bitter 1998 election campaign.

Chancellor Helmut Kohl and the Social Democrat (SPD) chairman, Oskar Lafontaine, have both denied their rare "summit", meant as the first of several hastily-arranged sessions, would lead to a cabinet reshuffle to include the SPD.

But it aims at least for an all-party effort to fight the unemployment record of 4.7 million, which threatens to prevent Germany from qualifying for the European single currency. "Pull us out of the crisis!" Bild, Germany's largest daily, appealed in a headline.

The issues on the table are clear. Since the SPD majority in the upper house of parliament can block any new tax law, Mr Kohl needs its support to cut taxes by DM30bn (pounds 11.3bn) and lower unit labour costs, thus promoting more jobs.

Public alarm over rising unemployment is now so fierce that the SPD cannot afford to stonewall; voters in next year's elections would punish them for delaying a solution. But the main opposition party cannot compromise so much that it ends up helping Mr Kohl build a re-election campaign on the claim that he pulled back Germany from the brink.

The best-case scenario calls for agreement on laws this year to start cutting taxes in 1998. In the worst case, there will be no consensus and both parties will revert to confrontation to pin the blame for the failure on the other.

Recent polls show Mr Kohl's centre-right coalition trailing an opposition alliance of the SPD and Greens. The Chancellor does worse than either possible SPD challenger, Mr Lafontaine, or Lower Saxony's state premier, Gerhard Schroder.