Merkel Coalition Averts Crisis With Deal on Basic Pension

Iain Rogers and Arne Delfs

(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.

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.

(Updates with comments from party leaders starting in third paragraph.)

--With assistance from Patrick Donahue.

To contact the reporters on this story: Iain Rogers in Berlin at irogers11@bloomberg.net;Arne Delfs in Berlin at adelfs@bloomberg.net

To contact the editors responsible for this story: Chad Thomas at cthomas16@bloomberg.net, James Amott

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