Confidence grows for deal on new Merkel government

GERMANY - 6 February 2018: Chancellor Angela Merkel's conservatives and the centre-left Social Democrats inched closer towards a coalition agreement Monday, raising hopes of an end to months of political gridlock in Europe's top economy.

A final round of talks was expected to stretch late into the evening after marathon weekend negotiations failed to yield the desired breakthrough on all outstanding differences.

However both sides sounded upbeat about the chance for a deal by a self-imposed Tuesday deadline.

Volker Bouffier, a deputy leader of Merkel's Christian Democrats (CDU), told reporters he was "confident" the finish line was in sight but "we may need tomorrow morning as well" to iron out the final kinks.

In a sign of progress, SPD leader Martin Schulz said agreements had been reached on key European policy issues.

"We all agree that the future of our country lies in a strong and united Europe," Schulz wrote in a message to party members.

Germany has been in limbo since an inconclusive general election in September left Merkel and her CDU/CSU bloc without a ruling majority, leading to the longest coalition negotiations in postwar history.

The Social Democrats, Germany's second largest party, have served under Merkel in a right-left "grand coalition" for two of her three terms since 2005.

But governing in her shadow has cost them vital support and they scored a historic low 20.5 percent in the election.

Their leader Martin Schulz had initially ruled out working with her in the next four years, preferring to sharpen the SPD's profile in opposition.

- 'Not reached finish line' -

Merkel at first turned to two smaller parties, the Free Democrats and Greens, to form a new government.

But when those talks collapsed in acrimony in November, she had to once more woo a reluctant SPD for a new pact.

The SPD has sought to drive up the price for a deal, which it must still sell to its 440,000 members who will vote on the pact in a yes-or-no referendum.

That vote is expected to be tight, with leaders aiming to have a government in place by the end of March.

Both main parties reached a breakthrough deal in January when they presented an in-principle agreement to start formal coalition talks.

But the last round of negotiations has thrown up several sticking points.

SPD demands to shift temporary workers to permanent contracts and to make Germany's health insurance system fairer have run into strong conservative opposition.

"You see in the areas where we are still far apart that we are very different parties and that we come from very different fundamental beliefs," Family Affairs Minister Katarina Barley of the SPD told public radio.

- A deal for Europe -

At stake for Merkel is whether she leads a stable coalition into her fourth term or risks a fragile minority government or new elections.

Both sides hope to avoid going back to the polls amid concerns the drawn-out gridlock could strengthen the far-right Alternative for Germany (AfD), which scored nearly 13 percent in the September election.

The political impasse in a key European Union member has had repercussions abroad, holding up French President Emmanuel Macron's push to overhaul the bloc and deepen eurozone integration.

Merkel has offered only tentative backing for the reform plans, but the SPD has been more enthusiastic -- even about some of Macron's more ambitious proposals for the eurozone such as a joint budget and finance minister.

While details remain vague, Schulz on Monday said the would-be coalition partners had finished their talks on Europe, agreeing to invest more in the eurozone and putting "an end to the austerity diktat".

Meanwhile, a new Insa survey to be published in Bild newspaper on Tuesday found that the protracted coalition wrangling had sapped support for the main parties.

If elections were held now, the CDU/CSU's score would slip from 33 to 30.5 percent, while the SPD would slump to 17 percent -- meaning they parties would no longer hold a parliamentary majority together.

The AfD would garner a record 15 percent.