German political parties agree on value-added tax introduction

An agreement between Germany's two biggest political parties on increasing value-added tax is a breakthrough in negotiations over a left-right "grand coalition" and leaders hoped weeks of negotiations could conclude soon, a top conservative said Friday. In talks that lasted into the early hours of Friday, officials said the two sides agreed to raise VAT to 19 from 16 percent from Jan. 1, 2007, a move that the Social Democrats opposed during the campaign for Sept. 18 elections.

Franz-Josef Jung, the Christian Democrat's choice for new defense minister, said there are "now only a couple of points" left on the table.

"Yesterday we achieved a crucial breakthrough regarding savings and providing new impetus for the economy and work, which are completely necessary and important," Jung said on ZDF television.

The two sides were hoping to reach a deal later Friday, or at the latest Saturday, to put conservative Angela Merkel in the chancellery in an alliance with outgoing Chancellor Gerhard Schroeder's Social Democrats.

"Everything is looking good," senior conservative Michael Glos said after party leaders broke up for the night.

The new government will have to tackle a sluggish economy, high unemployment and mounting debt. The two sides have been at odds over details of spending cuts and expected tax hikes to plug a Ђ35 billion (US$41 billion) budget deficit, the AP reports.

They have yet to resolve differences on whether to shut down Germany's nuclear power stations as planned by the outgoing government, and on details of labor and tax policy, negotiators said.

Officials have already agreed to several planks for a joint platform, including a gradual raising of the retirement age to 67 from 65 and a commitment to close ties with the United States.

However, they also need to compromise on points where the two sides were diametrically opposed before the election. Voters denied both a majority to govern with their preferred small partners.

The outgoing government secured a deal with industry to close down all Germany's nuclear plants by about 2021. Conservatives want safe plants to stay open longer.

On photo: Franz-Josef Jung.

T.E.