- The Washington Times - Sunday, November 13, 2005

BERLIN — Germany is committed to boosting ties with the United States under a coalition agreement to be ratified by the two major parties today. But business leaders are seething over elements of an economic-recovery package that they fear will stifle growth.

If approved by special party conferences today, the deal will clear the way for Angela Merkel to be elected chancellor Nov. 22, after four weeks of marathon talks between her conservatives and the Social Democrats (SPD) of outgoing Chancellor Gerhard Schroeder.

Announcing the package Saturday, an exhausted-looking Mrs. Merkel said she knew her government would be judged by whether it can cut unemployment, stuck at almost 5 million, or more than 10 percent.

“By European and global standards, Germany is in a state of decline,” she said. “Our goal is to stop this downward trend, reverse it and give the people in this country more prosperity and more jobs.”

The deal said the government will seek to improve ties with the United States, which have never fully recovered from Mr. Schroeder’s opposition to the war in Iraq. Germany would try to promote better understanding between the United States and Europe, the agreement said.

“We want to pursue trans-Atlantic relations that are oriented toward the future without forgetting our common history,” the text said. “For that, it is essential to have a close relationship of trust between the [United States] and a self-confident Europe that sees itself not as a counterweight, but as a partner.

“That doesn’t exclude the possibility of differences of opinion which have to be dealt with through dialogue and in a spirit of friendship.”

It adds: “Partly in order to improve the resolution of trade disputes, we want to promote a better understanding of the [United States] in the German public and a better understanding of Europe and Germany in the United States.”

The agreement enables Germany to form a new government two months after an inconclusive election that plunged the usually sedate political system into turmoil. It will be the first “grand coalition” between the two main parties in almost 40 years.

But the pact has been fiercely criticized by business leaders and media commentators who fear that the country’s meager existing growth will be choked by measures designed to get the budget deficit back below European Union limits, which it has breached for the past three years.

The sales tax will be increased by three points to 19 percent beginning in January 2007 under the plan, which also calls for higher taxation of the wealthy, higher pension contributions from workers and a rollback of various tax breaks.

Public spending will be cut by 10 billion euros, but there will be increased state investment in building projects, according to the plan.

A reform of the health system has been shelved, and the SPD blocked conservative plans to curb trade union powers. However, the parties did agree to make it easier for businesses to fire workers, amending rules on protection from dismissal that had been seen as an obstacle to job recruitment.

“Leading the country doesn’t mean you simply add up the bad proposals of two parties,” said Bernd Pischetsrieder, the head of car makerVolkswagen.

Porsche’s chief executive, Wendelin Wiedeking, said, “We’ve just been told a pack of lies. Everybody’s feeling it regardless of how much they earn.”

The influential weekly magazine Der Spiegel described the agreement yesterday as “nothing other than a bitter emergency program to restructure the public budgets.”

“It doesn’t generate any spirit of revival and provides no signals of reform.”

However, the ability of the two parties to agree on a program at all was seen as a success after the bitterly fought campaign, in which leading Social Democrats said Mrs. Merkel didn’t have what it takes to be lead Germany.

Matthias Platzeck, the designated SPD leader, said, “What we’re doing here isn’t a love affair; that’s totally clear. It’s a sober marriage of convenience.”

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