Crucial Talks Will Decide Fate of German Reforms

The nature of Germany’s federal system often requires important legislation to be approved by the country’s 16 states, which means the fate of Schröder’s so-called “Agenda 2010” will be decided in a mediation committee representing Germany’s two houses of parliament. Starting Wednesday, the crucial talks will run through next Monday.

“We still remain far apart on many important issues,” Volker Kauder, the top negotiator for the opposition conservative Christian Democrats (CDU), told the AFP news agency. Kauder said the chances of reaching a deal stood at “fifty-fifty.”

Schröder’s center-left coalition of Social Democrats and Greens passed labor market reforms and tax cuts in October in the lower house, but the Bundesrat – controlled by the conservatives and free-market liberals – rejected them last month. That’s set the stage for a high-stakes legislative poker match that will determine the fate of the biggest reform process in Germany in recent history.

Schröder's fate

A package of sweeping reforms designed to kickstart growth and trim the country’s bloated welfare state, Schröder has tied his political future to the passage of Agenda 2010. Accordingly, members of his Social Democratic Party (SPD) have adopted an optimistic and conciliatory tone with the start of the talks.

“Decisive will be whether we move towards each other. And that we do,” SPD negotiator and Bremen Mayor Henning Scherf told journalists on Wednesday.

The opposition remains loath to give Schröder a political victory he so desperately needs at the moment as the SPD hovers at all-time lows in opinion polls. But the conservatives are also aware that blocking the reforms could backfire at a time when Germany’s is suffering from low growth and high unemployment.

Being negotiated are plans to bring forward tax cuts worth €15.6 billion ($12.7 billion) by a year to 2004 and cuts in welfare and unemployment benefits. The 32-member mediation committee will have to wade through nearly 3,000 pages of legislation broken up into 15 separate parts.

Although there has been no official confirmation, there is speculation that Schröder will meet with top members of the opposition to thrash out an agreement. But CDU party leader Angela Merkel has warned against putting too much hope in high-level talks and has called on the government to negotiate in the mediation committee.