Olaf Scholz. Picture: BLOOMBERG/LIESA JOHANNSSEN
Olaf Scholz. Picture: BLOOMBERG/LIESA JOHANNSSEN

Finance minister Olaf Scholz cleared a major hurdle in his bid to succeed Angela Merkel as German chancellor, securing a preliminary commitment from his prospective partners to form a three-way coalition government.

His Social Democratic party, the Greens and the pro-business Free Democrats on Friday agreed on the basic principles for a ruling alliance. The accord came remarkably quickly by German standards, with joint talks starting just a week ago. The parties will begin formal negotiations to hammer out the details as early as next week.

Scholz said the parties managed to bridge differences to unleash Germany’s biggest industrial renewal in a century, including accelerating its exit from coal and modernising manufacturing. To achieve the breakthrough, the SPD and the Greens accepted the FDP’s demands to leave constitutional debt limits intact and not impose new taxes. The Greens also abandoned a push to limit speeds on the Autobahn. 

“This is a very good result,” Scholz said at a press conference in Berlin, flanked by his counterparts from the other parties. “It makes clear that Germany can form a government that can achieve progress, progress that’s possible and necessary in many, many areas.”

The three-way combination, while messy, is Germany’s most viable governing alliance, and the parties have been under pressure to find compromises on issues from spending and taxes to climate protection and social policy.

The Greens will hold a small convention on Sunday on the accord, while the FDP leadership will discuss the pact on Monday. The SPD’s board unanimously approved the agreement, according to DPA. Formal coalition talks, which will include haggling over ministry posts, are expected to start as early as next week. 

“We managed in intensive talks that were held late into the night on a coalition for reform and progress to ensure that the next decade is a decade of renewal,” said Annalena Baerbock, the Greens co-leader and its candidate for chancellor in the campaign.

While disputes are still possible, proceeding to coalition negotiations is a critical step in Germany’s complex process of transferring power. It shows the parties see enough common ground and makes it more likely that a Scholz-led government can start running Europe’s largest economy before the end of the year. 

After the Social Democrats narrowly defeated Merkel’s conservatives in the September 26 election, Scholz moved quickly to build an understanding with the Greens and the FDP — an unprecedented alliance at the federal level in Germany. 

While the SPD and the Greens are natural partners, the biggest challenge was getting the FDP on board. The market-orientated party campaigned for fiscal prudence and clashed with the SPD and Green over plans to open Germany’s coffers to upgrade infrastructure, protect the environment and expand digital technologies. 

“We see in it an opportunity, in which three very different parties can agree on common challenges and prescriptions for solutions,” FDP chairperson Christian Lindner said. “There’s a chance for a possible coalition that will be bigger than the sum of its parts.”

Formal coalition negotiations are a more comprehensive format that involves detailed policy discussions. There are significant hurdles that have yet to be overcome, with financing a particularly thorny issue. 

Ralph Brinkhaus, the Christian Democrats’ caucus leader in the Bundestag, attacked the text as “vague” and for not specifying how the agenda would be financed.

“Almost all spending wishes will be fulfilled, but nowhere is it concretely spelt out how this should all be paid for,” he said in a statement.

Once a final text of the lengthy coalition agreement is approved, the parties would call a vote in German parliament. Only then would Scholz take office. 

“With what we’ve agreed here, we have the fiscal leeway for what is necessary,” Scholz said.

Bloomberg. More stories like this are available on bloomberg.com

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