German Chancellor Angela Merkel's centre-right coalition moved to end months of discord by agreeing to a batch of welfare measures, which the government also hopes will win it support in next year's national elections.
The measures, which include boosting child benefits and abolishing
the deeply unpopular 10-euro charge for doctors' visits, could also
help underpin consumer confidence in the country at a time when
global economic certainty threatens its export machine and growth.
Under the deal, which was hammered out at a marathon meeting
stretching into early Monday, the government also earmarked a modest
750 million euros for infrastructure projects as well as helping to
guarantee pension entitlements to low-income earners.
The raft of reforms unveiled Monday followed the government's plan
to cut compulsory contributions to pension schemes by 6.4 billion
euros (8.2 billion dollars), which it pushed through parliament last
month. Pension contributions will be cut from 19.6 to 18.9 per cent
of pay packets.
The changes meant that the coalition could close ranks and even
avoid a possible collapse as it gears up for elections set for
September 2013.
For the last few months, Merkel's three-party coalition government
has been dogged by tensions as the pro-business Free Democrats (FDP)
have attempted to arrest a decline in their electoral support by
campaigning to scrap the quarterly charge for doctors' visits.
In return, the Bavarian-based conservative Christian Social Union
(CSU) secured FDP backing for a monthly allowance for parents who
want to care for their children at home. The CSU is also facing a
state election next year.
ING Bank economist Carsten Brzeski said the slew of measures,
which involve very little in terms of government spending, are also
likely to send a message to Germany's embattled neighbours in the
debt-hit eurozone.
With five of the eurozone's 17 members now in recession, the
region's leaders had been hoping that another solid performance by
Europe's biggest economy might help to boost flagging growth across
the currency bloc.
However, Brzeski said: "I think it is a signal to the rest of the
eurozone that they should not expect a significant fiscal stimulus
from Germany next year.
"The overarching consideration is that Germany signs off on a
balanced budget in 2014."
As the debt crisis emerged, over the past three years Merkel has
attempted to secure agreement for European states to cut back high
debt-and-deficit levels on a permanent basis, including by balancing
their budgets.
Most analysts expect Merkel will be returned to power for a third
term with her Christian Democrats and CSU consistently holding a
strong lead in opinion polls. But the shape of the new government is
far from clear.
Polls have cast doubt on whether the FDP will be able to garner
the necessary 5 per cent of the national vote to return to
parliament.
Analysts believe this could force Merkel to again forge a
coalition with the opposition Social Democrats (SDP). Merkel formed a
so-called grand coalition with the SDP in 2005 for her first term as
chancellor.
Germany had until recently managed to weather the economic fallout
from the debt crisis.
But there are signs that the austerity and recession gripping the
eurozone as well as the slowdown in the global economy have been
catching up with Germany.
This raises the risks of the campaign for the election being held
against the backdrop of slowing national economic growth and moves by
employers to cut jobs.
The government has already slashed its growth outlook for next
year.
At the same time, it remains unclear how the euro debt crisis will
unfold in the coming months. This includes whether Spain might be
forced to tap the European bailout fund or whether Greece will need
more help - each of which the German parliament is likely to have to
agree to.
The welfare measures the Merkel's coalition have agreed to could
also end up helping to soften the bailout-weary German public, in
case parliament has to vote again on another package of aid for one
of the eurozone states at the centre of the debt crisis.
