Let the negotiations finally begin

This week, the official coalition talks between Angela Merkel’s CDU and the social-democratic SPD can finally start. It probably did not need any phone calls from other Eurozone leaders, but finally, three weeks after the elections, official coalition talks in Germany will start this week. Two weeks of so-called exploratory talks had limited the options for Angela Merkel to one: the social-democratic SPD. It does not seem to be love at first sight, but on Friday both parties, CDU and SPD, announced that they were ready for official coalition talks. Yesterday, the SPD party convention gave the final green light. The SPD convention’s “yes” was sweetened by the party leaders’ list of key demands of Angela Merkel. These demands include (i) the introduction of a nationwide minimum wage of €8.50, (ii) equal pay for men and women, (iii) a financial transaction tax, (iv) more investment in infrastructure and education, (v) a strategy to boost growth and employment in the Eurozone, (vi) equal pensions for seniors in the former West and East Germany, (vii) the ability to have dual citizenship, (viii) measures to make it easier to combine work with family life, (ix) a cap on rents and (x) stricter penalties for tax evaders. In our view, these demands should hardly have the potential to derail the upcoming coalition talks. On some issues, like for example the minimum wage, the CDU had already moved towards the SPD’s position in recent days. Other issues have been phrased rather vaguely, opening the door for compromises. More controversial issues like the call for tax increases have been dropped. Once a coalition deal is struck, the SPD is still set to seek final approval in a poll of its grassroots members. The negotiations might not even be the biggest challenge, at least not for the SPD.