The US government wants Germany to open up its purse strings, in the hope that doing so will rev up the European economy. Similar calls have come from international lenders and Germany's eurozone partners. German Chancellor Angela Merkel's response? She's pressing the three parties in her future coalition to abandon expensive election promises that she fears would blow Germany's budget during the next four years.
That not only puts her on a collision path with figures like EU Economic Commissioner Olli Rehn, who urged Germany this week to stimulate domestic demand. It also puts her at odds with senior figures in her own party plugging for projects to please voters. The conflicting priorities have global implications. A week ago, Germany's "anaemic pace of domestic demand growth" was criticised by the US Treasury, which said it was having "a deflationary bias ... for the world economy."
That was a call in code for Germany to raise wages, encourage consumption and splash out more on infrastructure and education. Instead, her government's legislation and spending will follow a script being written between now and mid-December in Berlin between her and her partners. Her bloc fell just five seats short of a legislative majority in the September 22 general election and needs a coalition partner.
In 2009, Merkel rushed to set up a coalition with another party, the pro-business Free Democrats (FDP), and postponed decisions on disputed policy issues "to be reviewed later." The result was four years of squabbling as they disagreed on what had been agreed. This time Merkel wants the equivalent of a pre-nuptial contract, setting in stone exactly what the German government will do for the next four years. That also means, should world bodies appeal next year to Germany to do some fiscal stimulation, the chancellor will be able to coolly respond that it's not in her playbook.
When the 75 politicians split up into committees two weeks ago to negotiate, many had their own agendas. They had election policies to fulfil: widened roads, getting decent internet access to small towns or helping people to nurse senile relatives at home. Many Germans would welcome those benefits. Merkel's Christian Democrats (CDU) want to boost women's pensions at a cost of 6.5 billion euros (8.8 billion dollars) annually. The Social Democrats (SPD), who will soon have their party conference, want funding for an early retirement scheme.
A CDU proposal to cure bracket creep in income taxes, where inflating wages push workers into high tax brackets, would ultimately cost Berlin and regional governments 19 billion euros over four years. Were Germany to raise its education spending to the level recommended by the Paris-based agency OECD, an extra 18 billion euros could be spent by 2018 on extra teachers and upgraded universities. But this week, as the recommendations came back to her desk, Merkel cracked the whip.
On Tuesday, Horst Seehofer, leader of Merkel's Bavarian affiliate, the Christian Social Union, rebuked negotiators behind closed doors for writing "shopping lists" of pet projects that could not be financed if Germany was to keep its budget balanced. Merkel was present and reportedly said she fully supported that, adding that she would give her own CDU the same message. On Thursday, she spent the day ramming that message home in a series of meetings with conservatives in her office.
Katherina Reiche, a Christian Democrat negotiating the environment dossier, toed the new party line. Balancing the budget and economic growth were the top priorities of the next government. This ruled out any increases in government spending, she told reporters. "All the many wishes have to be subordinated to that," she said.That means voters will soon have a rough awakening. Instead of receiving all the benefits promised on the hustings by the CDU, CSU and SPD, the coalition is expected to say so much bounty is unaffordable.
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