German Chancellor Angela Merkel gestures as she address media during a news conference at Bundespressekonferenz in Berlin July 19, 2013.
Credit: Reuters/Tobias Schwarz
BERLIN |
BERLIN (Reuters) – Chancellor Angela Merkel looked on track to win a third term in a weekend election in Germany but faced a battle to preserve her center-right majority and avert a potentially divisive coalition with her arch-rivals, the center-left Social Democrats (SPD).
The vote on Sunday is being watched across Europe, with many of Berlin’s partners hoping it will bring about a softening of the austerity-first approach Merkel has promoted since the euro zone debt crisis broke out nearly four years ago.
But the prospect of major shifts in her euro policy are slim, even if she is forced into a “grand coalition” with the SPD, whose candidate Peer Steinbrueck has criticized the chancellor for choking off growth in southern members of the currency bloc by insisting on spending cuts and painful reforms.
“Germany remains committed to euro zone membership, but public opinion and institutional constraints … limit the scope for any German government to drastically alter course towards more generous support policies,” analysts at Citi Research said in a research note.
Two days before the vote, a survey by Forsa for private broadcaster RTL showed Merkel’s conservatives — the Christian Democratic Union (CDU) and its sister Bavarian party the Christian Social Union (CSU) — 14 points ahead of the SPD, meaning she will almost surely return for a third term.
But her combined center-right bloc, which includes the business-friendly Free Democrats (FDP), was in a dead heat with left-leaning opposition parties, with both camps on 45 percent.
That makes the election in Europe’s largest economy too close to call.
Merkel could win a narrow majority with the FDP, her preferred partner, or fall short and be forced into difficult negotiations with the SPD which could last up to two months and result in big changes to her cabinet, including the departure of Finance Minister Wolfgang Schaeuble, a key player in the crisis.
The wild card is a new anti-euro party, the Alternative for Germany (AfD), which polled 4 percent in the Forsa survey but is given a decent chance of vaulting above the 5 percent threshold needed to win seats in parliament on election night.
That would doom Merkel’s hopes of continuing her current coalition and stir concerns about rising German euroscepticism, though its impact on government policy would likely be limited.
UNDECIDED VOTERS
Also complicating forecasts is a large group of undecided voters, estimated by pollsters at more than 30 percent.
“I still don’t know who I’m going to vote for,” Anja Brueckmann, a secretary who usually votes for Merkel’s CDU, told Reuters in Berlin. “I keep listening to all this talk from the politicians but no matter who wins nothing changes.”
Merkel, 59, would be only the third post-war German leader, after Helmut Kohl and Konrad Adenauer, to win three terms. After Jean-Claude Juncker of Luxembourg and Andrus Ansip of Estonia, she is Europe’s longest-serving leader.
Hugely popular at home for her steady “step by step” leadership during five years of global and euro zone financial crisis, supporters have taken to waving “Mutti” (Mum) signs at rallies, reflecting her image as a caring mother of the nation.
She has presided over a robust economy and booming labor market. At 6.8 percent, the German jobless rate is roughly one-quarter that of Greece, which stands at more than 27 percent.
“Germany has had four good years. We accomplished a lot together,” Merkel said in a CDU campaign letter received by over 5 million German households on Friday.
Merkel’s critics deride her as a reactive, risk-averse leader whose policies have slavishly followed public opinion, instead of shaping it. They say Germany’s economic success is largely down to reforms introduced a decade ago by her predecessor, SPD chancellor Gerhard Schroeder.
Merkel, who grew up in communist East Germany as the daughter of a Protestant pastor, became chancellor in 2005 after narrowly beating Schroeder.
Because of her razor-thin margin of victory, she was forced into the first ‘grand coalition’ between Germany’s two biggest parties since the 1960s. After winning re-election in 2009 with the FDP, she may have to look to the SPD again after Sunday.
This time the process may not be as smooth.
“The (SPD) lost 13 percent of the vote during its last partnership with Chancellor Merkel and is highly concerned about the potential long-term electoral repercussions of repeating the arrangement,” said Alex White of JP Morgan in London. “SPD leaders will push for the most advantageous possible deal, likely extending negotiations for a period of many weeks.”
In the talks, the SPD is expected to push for a nationwide minimum wage, a tax rise for higher earners and also key cabinet posts, including possibly the finance and foreign ministries.
(Additional reporting by Erik Kirschbaum, Stephen Brown and Gareth Jones; Editing by Gareth Jones)
French President Francois Hollande delivers a speech during a ceremony to mark the 130th anniversary of the Alliance Francaise, the institution which promotes French language and Francophone culture abroad, at the Elysee Palace in Paris, July 16, 2013.
Credit: Reuters/Ian Langsdon/Pool
PARIS |
PARIS (Reuters) – President Francois Hollande may only manage a lightweight reform of France’s indebted pension system, with trade unions preparing street protests and his own Socialist Party warning it would oppose painful measures.
Fellow Europeans say France risks damaging its own standing and that of the euro zone among investors, and upsetting southern members struggling with harsh reforms, if it fails to address the deficit in its pension funding.
But left-wing lawmakers are determined to prevent any erosion in the old-age provision enjoyed by the French.
Hollande, who has already excluded any outright rise in the retirement age from the bill due before parliament in September, faces resistance to his more modest plan of extending the 41.5-year contribution payment period required for a full pension.
Aside from the risk of protests and strikes hitting Europe’s second-largest economy, Hollande’s room for maneuver is further crimped by the fact that even a tiny revolt among back-benchers would scupper his three-seat parliamentary majority.
“It will be an intermediate reform: one that is just enough to appease markets but not brutal enough to upset things at home,” said economist Henri Sterdyniak of France’s OFCE economic observatory.
Contrary to common international perceptions that the French enjoy cosy retirements, the average pension is only 60 percent of working-age post-tax income versus the 69 percent average for industrialized countries.
Yet the fact that pensions are almost entirely borne by the state means public spending on pensions is 14.4 percent of output versus 12.9 percent in the EU.
The pension pot has been depleted by rising unemployment and without reform, the funding gap will balloon from 14 billion euros ($ 18.40 billion) currently to 20 billion euros by 2020.
Hollande said on Thursday he was determined to achieve a reform sturdy enough not to require further tweaking before 2020, yet he was well aware of the dangers of forcing through more than unions and left-wing voters will swallow.
“We have to be very careful, but at the same time, we need to reform,” he told reporters over dinner at the Elysee Palace.
All past efforts at pension reform – including a modest 2010 revamp under conservative Nicolas Sarkozy aimed at tiding the system over to 2020 – have encountered weeks of demonstrations and costly industrial strikes.
Yet while France’s highly liquid bond market has held up well since it lost its last major AAA credit rating on July 12, analysts say foot-dragging on pension reform could see Hollande punished with higher borrowing costs.
“A lot more than the deficit of the pay-as-you-go system by 2020 is at stake,” said Deutsche Bank economist Gilles Moec.
“The pension debate could anchor Hollande in investors’ perceptions as a reformer, ready to take large political risks,” he said. “Any watered-down reform could fuel an already pervasive sense that ‘France doesn’t get it’.”
DOUBLE STANDARDS?
Hollande has no intention of touching the retirement age that Sarkozy raised to 62 from 60, having fulfilled a campaign promise to roll it back for those who started work early.
He believes a fairer way of making people work longer is to accelerate a process already under way to lift the mandatory pension contribution period to 41.5 years between now and 2020.
A government-commissioned panel has advised acting soon to extend that period to up to 44 years, while proposing other measures such as making well-off pensioners pay more tax.
While Hollande favors those options, his Socialist Party has stated its opposition to any speeding up of the extension of the contribution period before 2020. It has also come out against trimming annual pension increases to below inflation, another option under consideration.
Some observers see the party’s line more as political posturing than heralding a revolt by its parliament deputies. But it risks raising the alarm in Brussels, where the EU wants France to deliver a substantial reform in return for giving it two extra years to bring its overall budget deficit into line.
“It sends the completely wrong message if a leading EU nation cannot meet agreed reform targets,” said a senior euro zone diplomat. “A lot of very painful measures have been taken in southern Europe and there shouldn’t be double standards. The euro zone’s standing depends on these difficult decisions.”
Hollande has hinted he will spare the public sector from any major changes, avoiding the wrath of 5.3 million employees whose pensions are based on their last six months’ pay – typically the highest in their career – as opposed to the private sector which uses a formula based on a worker’s best earnings over 25 years.
Instead his plan to extend the contributions period and to strip tax exemptions from the wealthiest pensioners aims to spread the pain across the whole population. Government sources deny he will water down his plans.
“He has taken risks with reforms to labor laws and family benefits and he’ll do the same with pensions,” said one adviser.
“He doesn’t want to have to start over every two years.”
Frustratingly for the reformers in Hollande’s team, opinion polls suggest a majority of voters would back a bolder reform than his own Socialist Party.
A June survey by BVA found 75 percent of respondents want public sector pensions brought more in line with private-sector ones. In a May Ipsos survey, 66 percent wanted the pay-in period lengthened beyond 41.5 years and 61 percent wanted the legal retirement age raised.
Still, Hollande, with his approval ratings mired below 30 percent, is loath to run the slightest risk of big protests so close to municipal elections in March where the far right is set to make gains due to gloom over rampant unemployment.
Already, the hardline FO and CGT unions have called for demonstrations against the pension reform on September 10.
While they may be moving out of touch with overall public sentiment, the unions have enough clout to draw hundreds of thousands onto the street, playing on overall disillusionment with Hollande that boosted anti-gay marriage protests.
Socialist Party politicians say they don’t want to derail Hollande’s reform, but they do want to have a say in it.
“We’re not putting sticks in the government’s wheels, we’re putting boundaries around them,” said Socialist lawmaker Marie-Noelle Lienemann, part of the party’s left wing. ($ 1 = 0.7611 euros)
(Additional reporting by Robin Emmott in Brussels and Elizabeth Pineau in Paris; editing by Philippa Fletcher)
