German Reform Deal Set for Approval

“We did it,” Franz Müntefering, parliament floor leader of the ruling Social Democrats, said after a final meeting of a mediation committee on the reforms late on Tuesday. The deal will leave an extra €15 billion ($18.5 billion) in taxpayers pockets starting next year – about €568 for a family with a household income of €30,000.

A few hundred euros extra per year seems to be less than most Germans had hoped for, though: A poll published by the newsmagazine Stern on Wednesday showed that 45 percent had expected to get to keep more money in 2004.

An even greater number, 63 percent, said they didn’t believe the reforms will fuel economic growth or lead to the creation of more jobs. Conservative voters are slightly more unhappy with the final result than Social Democratic ones.

Some Christian Democratic Union (CDU) leaders agreed with their supporters. “This is definitely not a great success,” said Friedrich Merz, the CDU’s finance expert (photo). “It’s a compromise based on the smallest common denominator. We couldn’t do more, considering the government’s messy proposal.” Merz added that he plans to introduce a bill based on his own tax reform plan early next year.

Confusion on amount of tax cut

While other CDU leaders said the deal clearly bore their party’s signature, they had to make last-minute concessions in one crucial area: A calculating mistake added €1.2 billion to the tax cut after both sides had already announced the framework of the deal on Monday.

This means that 30 percent of the cut will have to be financed by taking on new debt. The opposition Christian Democrats grudgingly accepted this despite insisting earlier that only 25 percent of the tax cut should be paid for by increasing Germany’s debt.

Government’s own majority not guaranteed

While German Chancellor Gerhard Schröder can expect the reform compromise to pass Germany’s lower house, the Bundestag, it’s still unclear whether his governing coalition of Social Democrats and Greens could do so on its own.

Schröder only has a wafer-thin majority of four votes and at least five parliamentarians have already announced they will vote against the reforms. They said that they cannot support plans to weaken workers’ protection from getting fired.

Under the deal, welfare recipients will also be required to accept any legal job offered to them. Along with other subsidies, those for homeowners and commuters will be reduced to help pay for the tax cut.

The chancellor, quick to threaten coalition members with resigning should they fail to support him in the past, has not pulled out this trump card so far. Apart from the Bundestag, the reforms also have to be green-lighted in Germany’s upper house, the Bundesrat, where the CDU holds the majority. Approval here is also all but guaranteed.