2009-10-28 | Marta Zawilska-Florczuk

On October 26, after four weeks of negotiations, a CDU/CSU/FDP coalition government agreement was signed. Despite the urgent need to fix the country's ailing finances - in particular the costly social security system - neither structural reforms of the German market economy nor significant changes of the social system are foreseen in the afreement. The document's imprecise provisions regarding balancing the budget, reforming the tax system, labour law or the healthcare system leave a large amount of freedom of interpretation to the new government. Judging by the structure of the coalition agreement, the ruling parties will probably refrain from significant reforms and focus instead on supporting the education and integration of immigrants, considering it a method of partially solving Germany's social and economic problems.

Germany has been undergoing reform for several years and the biggest challenges it is facing now are: reviving economic growth, fighting unemployment, making federal institutions more effective (reforming the federal system), improving the demographic situation and social climate. Germany was in the last decade the most slowly developing country in Europe. The country also felt the consequences of a number of important changes: globalization, EU integration, German reunification, the introduction of the euro. Partial reforms carried out by the government of Gerhard Schröder (known as Agenda 2010), together with the world's economic situation and a resultant increase in Germany's exports, dynamized the German economy for a short period of time. This upward trend was abruptly stopped and overturned by the global financial crisis. Now the unemployment rate in Germany stands at 8 percent and a forecast of Germany's public debt - 65 percent of GDP.

The coalition agreement does not respond to the needed reform of the state

The main part of the coalition deal was devoted to the following issues: tax policy, crisis strategy, changes in the healthcare system, the energy sector and education. The fact that the document includes the description of mechanisms accelerating the integration of foreigners and making it easier for them to access the jobs market is without precedent. What is however lacking are ideas for the continuation of the reform of the German welfare state, initiated by the Agenda 2010 of 2003. In the coalition agreement there are no heralds of a radical change in the tax system (including scrapping tax relief, a reduction of tax thresholds) and an end to extensive social protection measures for workers, including the reduction of high labour costs. Nor can innovative ideas for combating the financial crisis be found in the agreement. The document specifies the division of departments among coalition partners. Apart from Chancellor Angela Merkel and the Deputy Chancellor, the Foreign Minister Guido Westerwelle the other important politicians are: Finance Minister Wolfgang Schäuble, who will play a significant role in the German internal and foreign policies, and Defence Minister Karl-Theodor zu Guttenberg. The fact that the Liberals are to head the ministries of economy, foreign policy, justice, health and development cooperation, proves their strong position in the new government. This may contribute to conflicts with the Christian Democrats, particularly those from CSU, over the crisis policy.

Sweeping reforms unlikely
Therefore, despite the favourable initial premises of the new government (the dominance of the Christian Democrats and Liberals in the Bundestag and Bundesrat, a similar assessment of the state of the German economy and priorities regarding necessary internal and economic reforms) sweeping reforms are not to be expected. The lack of important actions undertaken by the coalition partners will result from, inter alia, a huge budget deficit (-4.2 percent of GDP in 2009), which prevents them from limiting income generated from taxes, and the fears of the Christian Democrats that they may lose social backing following painful reforms (which was the case with SPD afer it implemented Agenda 2010). These fears are quite justified as, because of Germany's federal system, the politics of subsequent governments are subordinated to a permanent electoral campaign. In 2010 - 2011 elections for local parliaments of seven federal states will be held.

The coalition's goal: gradual change through education and integration

It seems that the new government will choose the method of half measures - changes in the policies of education and integration which can trigger shifts in other critical areas of Germany's social policy and economy. Priority given to these policies in the coalition agreement, increased budget funds for education and scientific research (by EUR 12 billion by 2013) and a declaration that instruments to support job seekers who are less educated and do not know German sufficiently will be introduced indicate that the new government wants to thus achieve two objectives. Firstly, the coalition partners will aim to relieve the country's finances (inter alia, by reducing unemployment and burdens linked with social benefits), which will make it easier in the future to fix Germany's budget. The fact that more emphasis is being put on education is meant to boost the development of the fields considered as having great potential in the future, such as environmental protection, the energy sector and communication. Secondly, by implementing the policies supporting the education and integration of foreigners, the government will meet the expectations of a large part of society (one of out five Germans is of immigrant descent) that constitutes a significant electorate, not previously permanently canvassed by any political party. 

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