Coalition agreement receives mixed reactions from employers and trade unions

On 11 November 2005, the conservative CDU/CSU and the social democratic SPD reached a deal to form a new government in Germany. The coalition agreement includes an increase in the VAT rate from 16% to 19%, a range of austerity measures affecting the social security system - including raising the retirement age from 65 to 67 - and a relaxation of the statutory protection against dismissal. The agreement received a mixed response from employers’ organisations and trade unions. Whereas the employers’ side is concerned that the social security austerity measures do not go far enough, trade unions are particularly critical of the loosening of statutory dismissal protection. Both sides have criticised the plans to increase the rate of VAT.

On 11 November 2005, the conservative Christian Democratic Party (Christlich Demokratische Union, CDU), its Bavarian associate party the Christian Social Union (Christlich-Soziale Union, CSU) and the Social Democratic Party (Sozialdemokratische Partei Deutschlands, SPD) reached a deal to form a so-called grand coalition. Negotiations to establish such a coalition between the conservative CDU/CSU and the SPD followed the general election held on 18 September 2005, in which neither party won an outright victory (DE0510201N).

Main points of agreement

The most high-profile issues in the coalition agreement are an increase in the rate of value-added tax (VAT) from 16% to 19% by 2007 and an increase in the highest income tax rate from 42% to 45%. Both moves are justified by CDU/CSU and SPD on the grounds of a need to tackle a public budget deficit of EUR 35 billion. Beside these much debated tax rises, the agreement also includes a wide range of austerity measures that will affect in one way or another the social security system.

The grand coalition has committed itself to raising the age of retirement from 65 to 67 from 2010 onwards. Whereas the general pension contribution will go up by 0.4 percentage points, the contributions to the unemployment insurance scheme will be reduced by two percentage points from 6.5% to 4.5% with effect from 1 January 2007.

The coalition government wants to cut expenditure related to the new state-funded 'unemployment benefit II' (DE0401205F), which came into effect in January 2005, by EUR 3.8 billion. Among the measures to be implemented will be a cut in the national insurance contribution paid to the national fund for recipients of unemployment benefit II. This contribution will be brought down from EUR 78 to EUR 40 - a measure that will eventually result in smaller pensions for long-term unemployed people. A further measure will be that the income of parents of unemployed people up to the age of 25 will be included in the means-testing for unemployment benefit II. Unemployed people under 25 years of age will also have to ask permission from the authorities before being allowed establish their own household. This should help to prevent young unemployed people becoming eligible for extra benefits for accommodation.

With regard to the labour market, the coalition agreement states that the national pact on apprenticeships (Ausbildungspakt) of June 2004 - whereby the government agreed to shelve controversial legislation to impose a levy on firms that do not hire enough trainees in exchange for a voluntary commitment of employers to increase apprenticeships and training places (DE0407105F) - will be continued. The government expects that this pact will provide 30,000 new training places each year.

With regard to the situation of older employees, the coalition commits itself to engaging in talks with employers and trade unions and encouraging collective agreements with the aim of improving further training and specific working-time arrangements for older workers.

Since 2003, restrictions on the use of fixed-term contracts with regard to objective grounds and time limits have been removed in connection with the recruitment of employees over 52 years of age, thereby effectively circumventing the statutory protection against dismissal for these employees. This provision has been brought before the European Court of Justice (ECJ) and the Advocate General of the ECJ stated in his legal opinion that this provision violates both EU Directive 2000/78/EC, which establishes a general framework for equal treatment in employment and occupation (EU0102295F), and the general principle of equal treatment (age discrimination). According to the coalition agreement, this legal provision, which was to expire at the end of 2006, will become permanent but will be brought in line with EU law.

With regard to the current legal protection against dismissal, the incoming government intends to extend the probationary period for statutory protection against dismissal from six to 24 months - ie employees will have to wait two years before being covered by statutory protection against dismissal. At the same time, however, the coalition plans to repeal the current legal provision which allows employers to limit employment contracts to two years without objective grounds.

The Posted Workers Act, which provides that posted workers should be covered by the same minimum collectively agreed pay rates and collectively agreed provisions on paid holidays as German workers (DE0306207T) and which currently applies only to the construction industry, is to be extended to the industrial cleaning sector.

In order to promote employment in the 'low-wage sector' (DE0005260F), the incoming government intends to examine the introduction of a so-called combined wage model (Kombi-Lohn-Modell) - ie to make the acceptance of low-paid jobs more attractive by way of a combination of low wages and social benefits. Together with the bargaining parties, the coalition wants to look for solutions that are both transparent and in line with the market. A working group will examine the low-pay sector, including the development of marginal part-time jobs, possible effects of the introduction of a minimum wage (DE0409205F) and a further extension of the Posted Workers Act.

Far-reaching alterations to the Collective Bargaining Act, which were much debated in the run-up to the coalition talks (DE0511101N), were finally postponed. In an appendix to the coalition agreement, the parties declare their intention to talk with the bargaining parties about arrangements to conclude company-level 'alliances for jobs'.

The coalition declares its general commitment to equal opportunities. If any of the alterations in the social security system and unemployment benefit that were introduced by the former government particularly disadvantage women, the coalition is prepared to look for remedies. Furthermore, the coalition intends to examine measures to make it easier for young parents with children to reconcile further education or university studies with family life. The incoming government plans the introduction of a new parental payment (Elterngeld). The payment will be based on 67% of the worker's net income (up to a maximum of EUR 1,800) and be paid to the parent who stays at home after the birth of the child. Entitlement will be shaped according to the current childcare payment ([DE0311203S](encoding fixed)).

Reactions of the social partners

The coalition agreement received mixed reactions from both employers and trade unions.

The president of the Confederation of German Employers’ Associations (Bundesvereinigung der deutschen Arbeitgeberverbände, BDA), Dieter Hundt, while admitting that the coalition agreement included some positive aspects, heavily criticised the planned tax rises. Further, the loosening of the statutory protection against dismissal is considered insufficient by BDA. Mr Hundt particularly deplored the fact that the coalition had not agreed on any changes in the collective bargaining legislation.

The president of the Confederation of German Industries (Bundesvereinigung der deutschen Industrie, BDI), Jürgen Thumann, was quoted in the press as saying that, all things considered, the power-sharing pact would be a continuation of the reform course of the previous government, though in several tiny steps.

The president of the German Retail Federation (Hauptverband des Deutschen Einzelhandels, HDE), Hermann Franzen, while being critical of the increase in VAT, called the coalition agreement a light at the end of the tunnel. He expressed his hopes that the incoming government would agree on further measures to reduce the additional wage costs of employers imposed by the social security system.

Commenting on the agreement, the chair of the Mining, Chemicals and Energy Industrial Union (Industriegewerkschaft Bergbau, Chemie, Energie, IG BCE), Hubertus Schmoldt, stressed the willingness of the trade union to cooperate with the new government. Currently, in his view, there is no realistic alternative to the grand coalition. IGBCE approved the commitment of the incoming government to collective bargaining autonomy. The trade union welcomed the fact that the coalition is not committed to a general legal minimum wage in Germany. IGBCE maintained, however, that the relaxation of the statutory protection against dismissal would be counterproductive.

Frank Bsirske, who chairs the major United Services Union (Vereinte Dienstleistungsgewerkschaft, ver.di), declared in a statement to the press that the agreement contains a number of positive aspects, such as the commitment to the bargaining autonomy, the introduction of a parental payment and the introduction of the supplementary tax for the highest incomes. Overall, however, the agreement would create additional burdens for employees, unemployed people and pensioners. Mr Bsirske criticised the increase in VAT and the loosening of the statutory protection against dismissal which, he said, would not create any jobs but only make employees feel more insecure and less prepared to be mobile. Mr Bsirske’s comment was that 'below the line scepticism and criticism prevails'. The head of the German Metalworkers’ Union (Industriegewerkschaft Metall, IG Metall), Jürgen Peters, followed the same theme, while declaring that he was prepared to cooperate with the government whenever this would be possible.

Commentary

The coalition agreement bears all signs of a compromise. However, as far as social policies and industrial relations issues are concerned, the agreement follows in many respects the line which was already pursued by the former 'red-Green' government. Many of the changes in the social security system that triggered protests by trade unions in 2004 had been jointly passed in both chambers of the German parliament by the conservative opposition and the red-Green government. The new coalition agreement means that both parties had to dump a number of commitments made in their election manifestos, but it is also an expression of a common ground between conservatives and social democrats on many issues. Many aspects of the future policies of the new government still remain open and it remains to be seen how some of the announced measures are received by the broader public when put into practice. As far as industrial relations are concerned, important issues such as changes in board-level co-determination have been left to future talks and tripartite negotiations. (Heiner Dribbusch, Institute for Economic and Social Research, WSI)