(Bloomberg) -- German Chancellor Angela Merkel’s government struck a compromise deal on a basic pension, a key issue for the Social Democrats that was threatening the stability of the ruling coalition.
The agreement to bolster retirement income for as many as 1.5 million long-term earners from 2021 was reached on Sunday after a meeting of senior officials from Merkel’s CDU/CSU bloc and the SPD in Berlin. In an effort to boost flagging economic growth, the coalition also agreed to cut unemployment insurance contributions by 0.2 percentage points to 2.4% through the end of 2022.
“This is a means of combating poverty in old age,” CDU leader Annegret Kramp-Karrenbauer said at a news conference. Pensioners will be subjected to a “comprehensive income assessment,” she added, which was initially opposed by the SPD and was one of the main sticking points in the negotiations.
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Malu Dreyer, one of the SPD’s three interim leaders, called the agreement a “milestone in social policy,” while CSU leader Markus Soeder said the measures would cost as much as 1.5 billion euros ($1.7 billion).
Soeder added that the deal showed there is no reason to doubt the staying power of the coalition, which has come under pressure following a series of setbacks in regional ballots.
Support for Germany’s traditional political heavyweights has dwindled since they agreed to end a stalemate after the 2017 election by forming another “grand coalition.”
The next election isn’t scheduled until late 2021 and Merkel has said she won’t run for a fifth term. Her Christian Democrats, and their Bavarian sister-party, the CSU, have yet to choose a chancellor candidate, while Finance Minister Olaf Scholz is attempting to position himself as the SPD’s pick.
The coalition also agreed to set up a fund worth 10 billion euros to promote “future technologies” linked to digitization and climate, overseen by the state-owned Kreditanstalt fuer Wiederaufbau development bank.
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