WSAW - My Capture
Jan 12, 12:32 PM EST

Hopes for a new government in Germany sent markets higher on relief that the Europe's biggest economy might soon get stable leadership, but some analysts have concerns about a lack of vision for the country

AP Photo
AP Photo/Markus Schreiber

Latest News
Nationalist Alternative for Germany party says one of its lawmakers will chair the parliamentary budget committee

German police say a small aircraft has crashed midair with a helicopter northwest of Stuttgart, killing four people

Police say a student has been killed by a fellow pupil at a school in western Germany

German and French lawmakers on Monday approved a joint resolution stressing the need for closer cooperation between the two nations as they mark the 55th anniversary of the signing of the Elysee friendship treaty

German conservatives, partners face tough coalition talks

Exhibit Honors Soviet Photographer
A district summary of the Beige Book
Measuring economic stress by county nationwide
Mall malaise: shoppers browse, but don't buy
Unemployment by the numbers
Family struggles with father's unemployment
Saying an affordable goodbye
Hard times hit small car dealer
Latest Economic News
Europe's recovery just keeps rolling, raising the question of exactly when the European Central Bank will end its extraordinary stimulus efforts

The Bank of Japan has opted to keep intact its unprecedented monetary stimulus despite stronger than expected growth

IMF upgrades outlook for global growth in 2017 to 3.7 percent, best since 2011

Economists say a lengthy government shutdown could hurt economy, but a short one would be just 'a blip'

Top financial officials in Puerto Rico offered a peek Friday into why the U.S. territory is mired in an 11-year recession as a federal control board demanded more transparency and information about the island's finances

Official figures show that retail sales in Britain in the crucial month of December sank by far more than anticipated in the markets

China's economy expanded at a 6.9 percent pace in 2017, faster than expected and the first annual increase in seven years

One year later, Trump claims credit for what is still mostly Obama's economy

President Vladimir Putin's economic adviser says the government is considering a possible boost in social spending

Europe is getting a new economic team in a complex and politically fraught game of musical chairs that will help determine the balance between austerity and spending, tight money and more central bank stimulus.

Greece's Debt Threatens to Spread
State budget
gaps map
Auto industry problems trickle down, punish Tennessee county
Women give old Derby hats a makeover in tough economy
S.C. town deals with highest unemployment in South
How mortgages were bundled and sold as securities
Tracking the $700 billion financial bailout
Tracking the year's job losses
State-by-state foreclosures since 2007
Credit crisis explained
Presidents and their economic legacies
Lexicon of the financial crisis
Americans' addiction to debt
Berlin Wall: 20 Years Later

FRANKFURT, Germany (AP) -- Hopes for a new government in Germany sent the euro and markets higher Friday on relief that the Europe's biggest economy might soon get stable leadership. But it left some economists and business lobbyists saying it offers too little to support the country's prosperity over the longer term.

Friday's tentative deal to open formal coalition talks would see Chancellor Angela Merkel's Christian Democrats, the allied Bavaria-only Christian Social Union and the center-left Social Democrats continue their coalition. The agreement follows the collapse of a proposal for Merkel's party to govern along with the Greens and pro-business Free Democrats.

One primary reason for investors' cheer - which saw the euro jump to a three-year high of $1.2156 against the dollar - was simply relief that the country's political situation was being sorted out, almost four months after the Sept. 24 election.

It seems likely that Merkel, a known quantity for investors and a firmly pro-European politician, will remain chancellor.

Also, the deal avoids the risk of another election, which would have raised the prospect of more gains by populist parties such as the far-right AfD. Analysts have singled out the rise in populist, euroskeptic parties in many countries as one of the key risks to growth and markets in Europe. Several such parties want to weaken the euro ties or break up the currency bloc altogether, with uncertain consequences for the region's economies.

"The agreement is overdue," said Dieter Kempf, president of the Federation of Germany Industries lobby. "Germany urgently needs a government capable of taking action."

The most important points in the agreement between Merkel's conservatives and the Social Democrats include a promise not to increase taxes, some flexibility on reaching a commitment to cut greenhouse gas emissions by 40 percent by 2020, and a willingness to work with France on steps to fix chronic flaws in the shared euro currency.

Friday's deal was only an agreement to open full-fledged coalition talks that should produce a more detailed policy map for the next government. A deal must also be approved by the Social Democratic rank and file, who have been skeptical about joining with the conservatives again after suffering substantial losses in the election.

The plan has some increases in social spending, such as a 25 euro per month rise in child benefit, along with a decrease in the so-called solidarity tax imposed to help the former East Germany catch up with the west.

Kempf welcomed the flexible approach to cutting greenhouse emissions, saying that "there are grounds for hope that technical and economic realities will be more clearly recognized."

He also welcomes the promise not to raise taxes, yet said that the 28-page document was short on specifics: "What is lacking is a vision of in what direction a future government will shape our country." He said the proposals represented a "minimum" of possible steps and urged more definite proposals on areas such as the digital economy.

The deal includes a strong statement in favor of strengthening the European Union, including steps to make the eurozone currency union function better. That could include transforming the current European Stability Mechanism bailout fund into a full-fledged European Monetary Fund to help backstop crisis-hit countries. There was also mention of targeted investment that could "serve as the point of departure for a eurozone investment fund." The euro currency's lack of a central fiscal pot to even out recessions has been identified as one of its weaknesses. The currency union was threatened with breakup in 2011-2012 during a crisis over too much debt in several member countries. Germany has resisted fiscal sharing out of concern that it would wind up funding other countries on a long-term basis.

There was no mention of other fixes such as EU-wide deposit insurance or efforts to promote cross-border investment holdings, dubbed capital markets union.

Still, continuity has a certain appeal in a country where the economy grew 2.2 percent last year and unemployment is low at 3.6 percent. Far-reaching reforms that from 2004 under former Social Democratic Chancellor Gerhard Schroeder that lowered business costs are often credited for boosting the country's economic performance.

Clemens Fuest, head of the Ifo research institute in Munich, sharply criticized the agreement for containing too much in additional social outlays and little in the way of tax reductions. "This government program will bring a long term expansion of the state share of economic output, that is, higher taxes and more spending."

Carsten Brzeski, chief economist for Germany at ING, said that "as regards economic policies, the agreement is a continuation of the well-known policies of the last few years: cautious steps forward, rather than any visionary experiments."


This story has been corrected to show that the name of the lobby group is Federation of German Industries, not Federation of Germany Industry.

© 2018 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed. Learn more about our Privacy Policy and Terms of Use.

WSAW-TV 1114 Grand Ave. Wausau, WI 54403
Gray Television, Inc. - Copyright © 2002-2013 - Designed by Gray Digital Media - Powered by Clickability
User Agent: Mozilla/5.0 (Windows NT 6.2; WOW64; rv:21.0) Gecko/20100101 Firefox/21.0