MADELEINE BRAND, host:
This is DAY TO DAY. I'm Madeleine Brand.
This week, Germany's two main political parties agreed on a strategy for a coalition government bringing together the Christian Democrats and the Social Democrats. There are doubts about how effective the new compromise government will be, but the deal confirms the handover of power at the top from Chancellor Gerhard Schroeder to Angela Merkel. NPR's Rachel Martin reports from Berlin.
RACHEL MARTIN reporting:
The Social Democrats' party conference this week was as much about saying goodbye to Gerhard Schroeder as it was about voting on the new coalition strategy. In his last political address as chancellor, Schroeder reassured the party faithful that the compromise deal will not undermine the party's policy of upholding a strong social welfare system.
Chancellor GERHARD SCHROEDER (Germany): (Through Translator) The coalition government may not be ideal, but we must treat the outcome with respect. What is clear is that the voters still want the SPD to govern the country, and we will do so in a coalition without diminishing our commitment to social values.
MARTIN: Schroeder's speech was followed by 20 minutes of applause, a tribute to the man who made his name on the international stage by being the first leader in postwar Germany to deploy troops to a conflict zone, Afghanistan, and the first to distance himself from the United States over the war in Iraq. But it's Germany's economic problems that define the recent election and shape the new coalition deal. Both the CDU and the SPD overwhelmingly approved the last-minute coalition plan, which paves the way for Angela Merkel to become the country's first female chancellor. Speaking to the CDU conference, Merkel underscored the need for continued compromise.
Chancellor-elect ANGELA MERKEL (Germany): (Through Translator) Dear friends, the coalition contract you see in front of you right now is not the end but the beginning of our work. It's the basis for working together with a partner we fought against for 40 years. It won't be easy, but our coalition talks showed that we can work together.
MARTIN: After six weeks of political wrangling, both parties had to make serious compromises. The CDU scaled back plans to make it easier for businesses to hire and fire workers, while the Social Democrats begrudgingly agreed to a 3 percent increase in the sales tax. That hike is supposed to help close the country's $40 billion budget shortfall, but critics say it won't do much to curb Germany's unemployment problems.
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MARTIN: Gabrielle Shtan(ph) owns a flower shop in central Berlin. She says the increased sales tax will hit small businesses like hers the hardest.
Ms. GABRIELLE SHTAN (Flower Shop Owner): (Through Translator) Business has been going downhill over the past year, and this is going to make things even worse. Many small shops like mine are going to close down because most owners won't be able to manage anymore, let alone hire more workers.
MARTIN: Michael Burda is an American economist at Humboldt University in Berlin. He says if the government can stick to their reforms, they could get Germany to rebound from its economic slump, at least in the long term.
Mr. MICHAEL BURDA (Economist, Humboldt University): Though they're going to take the slow approach, and if it's con--if it's done in a consistently preannounced way, it might actually work. The problem is it's always an incentive when you're halfway across the river to chicken out and swim back.
MARTIN: But there are concerns this coalition government won't even be in power long enough to start to turn Germany's economy around. With half the Cabinet seats in the hands of the Social Democrats, it will be difficult for Angela Merkel to achieve consensus in her new government. And upcoming state elections next year could upset a very fragile balance of power. Rachel Martin, NPR News, Berlin.
BRAND: DAY TO DAY returns in a moment. I'm Madeleine Brand.
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