Merkel Ends Deadlock in Coalition Deal With Social Democrats

(Bloomberg) -- German Chancellor Angela Merkel’s bloc has concluded a coalition agreement that hands a half-dozen ministries -- including the key foreign and finance portfolios -- to her Social Democratic allies, a move that will likely bolster the country’s commitment to greater European integration.

Merkel’s Christian Democratic Union will get five ministries, including defense and economy, and the CDU’s Bavarian sister party will take three, according to a copy of the coalition agreement obtained by Bloomberg. German media reported that Social Democrat party leader Martin Schulz will serve as foreign minister, Hamburg Mayor Olaf Scholz will oversee finance, and Horst Seehofer -- chief of the Bavarian Christian Social Union -- will get interior.

While Merkel sets policy guidelines for the government as chancellor, SPD-led finance and foreign ministries will allow Schulz to make good on his pledge to deepen euro-area cooperation and reach out to France’s Emmanuel Macron, who says the 19-country currency bloc should have a joint budget and finance minister. Merkel hasn’t fully embraced the proposals, though she has said the EU needs deeper integration to be able to assert meaningful influence on the global stage.

The deal was worked out by a core of about 15 leaders and must now be approved by a broader group of roughly 90. While the pact clears a key hurdle to a fourth term for Merkel, the SPD’s pledge to let its 464,000 members vote on the agreement augurs several more weeks of uncertainty.

After more than 24 hours of talks at the CDU’s headquarters, Merkel headed home for a few hours rest before a planned press conference to outline details of the deal.

The two sides “left our barricades and resolved the conflicts,” Alexander Dobrindt, the parliamentary caucus leader of the Bavarian Christian Social Union, told reporters outside the talks.

Any coalition deal will hinge on how well Social Democratic leader Martin Schulz, the challenger Merkel defeated in September, can sell the pact to a party base that’s chafing at the idea of helping the Christian Democrats govern for the third time since 2005.

Minority Government

Four years ago, 76 percent of the SPD’s rank and file voted to join Merkel’s government, but the mood is more divisive this time. Many members blame the party’s electoral decline on its role as junior partner for two of Merkel’s three terms and say the Social Democrats would do better to rebuild in opposition rather than join her again.

If SPD members reject the pact, Merkel would have to choose whether to pursue a minority government reliant on opposition votes to pass legislation, or to return to the ballot box for an election that polls suggest would resolve nothing.

“Cause Grumble”

Another alliance between Merkel’s Christian Democratic-led bloc and the SPD, a “grand coalition” between the two biggest parties, appeared almost impossible after the Sept. 24 election, when the SPD suffered its worst defeat since World War II. Schulz initially vowed he wouldn’t again enter a cabinet with the chancellor who’s led Germany for 12 years.

He changed position after Merkel’s bid to form a multi-party government with the Greens and the pro-market Free Democrats collapsed in November. German President Frank-Walter Steinmeier helped prod the CDU and SPD to the negotiating table, saying the country needs a stable government rather than a repeat election.

Henrik Enderlein, a professor of political economy at the Hertie School of Governance, said on Twitter that Merkel had made “major concessions” by giving up key ministries to the SPD and the CSU. The move will surely “cause grumble” in her party, Enderlein tweeted.

Merkel’s struggle to form her fourth government reflects Germany’s increasingly fragmented party landscape and the rise of the anti-immigration Alternative for Germany, the first far-right party to win seats in the Bundestag, or lower house, since just after World War II.

To contact the reporters on this story: Arne Delfs in Berlin at adelfs@bloomberg.net, Patrick Donahue in Berlin at pdonahue1@bloomberg.net, Birgit Jennen in Berlin at bjennen1@bloomberg.net, Rainer Buergin in Berlin at rbuergin1@bloomberg.net.

To contact the editors responsible for this story: David Rocks at drocks1@bloomberg.net, Chad Thomas

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