Germany Nears dual SPD, CDU Government After `Constructive' talks

Germany faces its first coalition government of Social Democrats and Christian Democrats since 1969 after Chancellor Gerhard Schroeder and opposition leader Angela Merkel held “constructive” talks to overcome an election stalemate.

Schroeder and Merkel agreed a new round of talks on Oct. 5 after meeting for exploratory discussions. Social Democrat and CDU leaders yesterday discussed the country's budget deficit and the labor market, Merkel said at a briefing in Berlin.

“We agreed that, if there's a grand coalition, it needs to tackle big, significant projects,” Merkel told reporters. Schroeder said “it will be possible to form a stable constellation that will keep Germany on its reform path for four years.”

Schroeder and Merkel, who on election night both said they want to lead the next government after the inconclusive Sept. 18 vote, have yet to agree on who will be chancellor. The 2 1/2-hour talks yesterday avoided a discussion about the future head of government in Germany, where unemployment is near a post-World War II high.

Schroeder's SPD won 222 seats in parliament in the national elections, three fewer than Merkel's CDU and their Bavarian sister party, the Christian Social Union. Neither side has enough seats to form a coalition with their preferred partners, making the ``grand coalition'' the only alternative, reports Bloomberg.

According to Financial Times both the SPD and CDU argued that, to be effective, a grand coalition should tackle "large-scale problems" such as federalism reform and Germany's severe budgetary problems. "It would be no good just agreeing on the lowest common denominator," Ms Merkel said.

Further exploratory talks are expected on Wednesday, after which the two sides are likely to enter formal coalition negotiations.

The extended nature of the discussions means a new government is unlikely to be formed before mid-November, delaying reform measures seen as necessary to boost Europe's largest economy and cut its gaping budget deficit, officials in Berlin said.

Yesterday's talks came as Edmund Stoiber, the Bavarian premier, confirmed that he would join the government in Berlin if a grand coalition were formed. This was seen as strengthening Ms Merkel's negotiating position but also as an effort by his Bavarian party to influence the policy direction of the CDU/CSU.