BERLIN, 28 March 2006 — With a round of key state elections now out of the way, German Chancellor Angela Merkel began clearing the decks yesterday for a series of new reforms to Europe’s biggest economy.
Speaking at a press conference following Sunday’s three state elections, Merkel said her grand coalition government was moving into “the second phase.” But 51-year-old Merkel could be facing a major political test as she attempts to bridge the big differences between her coalition partners in crucial areas.
“We will put a series of new issues on the agenda,” said Merkel who has been widely criticized by business leaders and economists for having let much-needed economic reform slip down her political plans since taking office in November.
But now Merkel has set out a series of reforms that she said her Christian Democrat-Social Democrat government’s plans to introduce in the coming months In particular, this includes a plan for a makeover of Germany’s lumbering health service and to address the explosion in the cost of prescription drugs as well as reforms to the nation’s corporate tax system and its fragile labor market.
Besides introducing a minimum wage, the government is expected to consider moves to underpin the low-wage sector along with a French-style law to remove job protection for young workers.
But with unemployment in Germany currently standing at a staggering 12.2 percent, many economists and business figures believe that the proposed labor market reforms will fall short of the measures that are needed to boost job creation in the country.
However, a senior government official said privately that Merkel had been forced to step back from more rigorous labor market reform because of resistance from the SPD, which has strong links to the nation’s union movement.
Merkel has already made clear that she plans to press ahead with a deeply unpopular move to introduce a hefty increase in the nation’s consumption tax in January next year.
Part of the funds generated by the three percentage point increase in consumption tax, are to be used to help cut high non-wage costs in Germany.
Union leaders have already warned that Merkel’s push to change the probation rules for young workers could trigger industrial unrest in Germany similar to that seen recently in France.
The chairman of the trade union confederation, Michael Sommer, said last week that Merkel’s plan was exactly what had brought people onto the streets in France, adding that the move to relax Germany’s strict hire-and-fire laws “would not be easily executed.”
Merkel is also planning to launch a fresh drive to slash bureaucracy in Germany and is planning to call the nation’s business leaders, political figures and heads of the nation’s powerful utilities to attend an energy summit.
The aim of the summit is to piece together a new energy strategy for the country. This follows differences between the SPD and Merkel’s conservatives CDU over key energy areas, notably nuclear energy.
While the SPD wants to phase out atomic energy, the CDU is keen to extend the present life of several reactors.
Moreover, last weekend’s state elections could also mark the end of Merkel’s long honeymoon with the nation’s voters, which has seen her popularity ratings soar to a record high.
Apart from moves to scupper job protection for young workers by extending their probation period from six months to two years, her government’s plans for reforming the deficit-hit health service could raise fears about the prospect of increased charges.
Talks between the SPD and the CDU on piecing together a health reform package are due to start tomorrow. Merkel hopes to sign off on a new health reform package in the next few months.
Already, however, the government has been forced to deny media speculation that the government is planning to introduce a special surcharge on health-service users.
What is more, both the SDP and the CDU are wide apart on their visions for the health care system with Merkel’s political bloc proposing a flat monthly rate to be paid irrespective of income.
For its part, the SPD wants to introduce a so-called “citizens’ insurance” plan which would help to boost funds for the hard-pressed health service by drawing in groups that are currently exempt such as civil servants and the self-employed.
