BERLIN – German Chancellor Angela Merkel said on Thursday that strong economic growth offered scope to further expand government spending, which could help her conservatives hammer out a coalition deal with the Social Democrats.
The government this week raised its 2018 growth forecast to 2.4 percent from 1.9 percent after bullish economic data, which could translate into added tax revenues.
That would give more leeway to increase state spending over the next four years beyond what is currently envisaged in coalition talks, and potentially lower taxes.
Merkel, speaking after a meeting with leaders of the country’s 16 state governments, said the revised growth forecast clearly offered “additional margin” for coalition negotiators.
Talks on ending over four months of political limbo are likely to stretch into next week despite agreements on education, migration and pensions, politicians said on Thursday.
Investors worry the long failure to form a new government is delaying reforms at home and in the European Union, after an earlier bid to rule with smaller parties collapsed in November.
Senior negotiators reached agreement late Thursday on a package of education programs valued at 11 billion euros ($13.76 billion) that Manuela Schwesig, a top Social Democrat negotiator, said could help win over members of her party who are skeptical about agreeing to another “grand coalition”.
“This flagship project of education offers the possibility to convince our members,” said Schwesig, premier of the state of Mecklenburg-Vorpommern. “We want to invest in the entire educational chain.”
To secure a fourth term in office, Merkel needs the center-left SPD to agree to a rerun of the coalition government that has ruled Europe’s biggest economy since 2013.
A new poll by Infratest dimap showed the SPD would win only 18 percent of the vote if new elections were held on Sunday, a drop of three percentage points from last month, and well below the postwar low of 20.5 percent the party won in the September elections.
Negotiators also reached agreement on Thursday on pension contributions, adding to consensus already reached on climate goals and family reunions for migrants.
According to a joint proposal, the guaranteed level of retirement payments covered by social insurance would be raised from 43 percent to 48 percent of a pensioner’s final working incomes.
The prospective coalition partners described the change as a milestone that would offer Germans greater financial security in old age.
