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Merkel’s new business agenda

November 27, 2013

German Chancellor Angela Merkel’s conservatives and the center-left Social Democratic Party (SPD) have reached a deal on forming a new government. The parties adopted policies set to burden German businesses.

Image: Reuters

Following a fierce controversy between Merkel's CDU/CSU conservative alliance and the Social Democrats, Germany's two largest parties have finally agreed to introduce a nationwide minimum wage of 8.50 euros ($11.2) per hour from the beginning of 2015. Collective wage agreements that are already in place and include a lower minimum wage will remain valid until the end of 2016.

Other labor market reforms laid out in the coalition treaty include new regulations for temporary employment. Companies will no longer be able to employ temporary workers for longer than 18 months. After a period of 9 months, they must pay those workers the same wages as permanent employees who do the same work.

Moreover, listed companies in Germany and those with works councils must reserve 30 percent of non-executive board seats for women from 2016 onward.

Public investment

In view of a massive infrastructure investment backlog in Germany, the new grand coalition aims to pump 23 billion euros into improvements over the next four years. Central to the drive will be a substantial increase in investment in transport infrastructure.

Funding for new roads and railway lines is planned to be raised through an increase in an existing toll on trucks, which is expected to rake in an additional 2.3 billion euros a year. Moreover, the new government plans to introduce a motorway toll on foreign drivers, if such a toll doesn't violate EU rules.

The coalition treaty also aims to set aside 3 percent of German annual gross domestic product (GDP) for research and development, as well as wants to invest 6 billion euros in all-day schools and nurseries.

Eurozone crisis and financial regulation

The two parties said they were committed to an EU banking union, including the creation of a European resolution body for large financial banks. They agreed that Europe's taxpayers should be shielded from any costs arising from the failure of a bank.

In this respect the eurozone rescue fund, ESM, must only be used as a lender of last resort to failing banks, and only after a resolution mechanism has been agreed with the European Central Bank (ECB) acting as banking supervisor.

In order to curb excesses in financial markets, Germany will push for an EU-wide financial transaction tax on trades in stocks, bonds, currencies and derivatives.

Finally, the two parties decided to introduce new laws preventing tax avoidance by multinational companies, which will include sanctions against banks that violate laws.

German energy transition revised

Under plans to rein in runaway electricity costs in Germany, the country's switch to renewable forms of energy will go back to the drawing board.

Envisaging a build-up of renewables to about 60 percent of total energy generation by 2035, the coalition seeks to cut incentives for green energy to slow the current rapid pace of expansion. Onshore wind power in areas where it is abundant will be mainly affected, while guaranteed feed-in-tariffs for photovoltaic installations remain at current levels.

Moreover, a review of exemptions granted to energy-intensive companies which do not pay a renewables surcharge on electricity prices is planned. With regard to shale gas fracking, the new government will maintain a moratorium on granting exploration licenses.

Caveat of financial feasibility

In their coalition treaty, the two parties outlined that future government expenditure would be tied to the state of public finances. They agreed that no taxes must be increased to fund the projects.

In addition, fresh borrowing should be reduced to zero by 2015, meaning that further budget consolidation is given priority over spending in the new German government.

uhe/dr (Reuters, AFP, dpa)