Schröder Leads Mediation Talks on Reforms

Schröder’s center-left coalition of Social Democrats and Greens passed labor market reforms and tax cuts in October in the lower house, but the upper house – which represents Germany’s 16 federal states and is controlled by the conservatives and free-market liberals – rejected them last month. That’s set the stage for a high-stakes legislative poker match that will determine the fate of the biggest reform process in Germany in recent history.

The mediation committee is charged with hammering out a deal between the lower house, the Bundestag, and the upper house, the Bundesrat. Schröder, joined by Greens leader Foreign Minister Joschka Fischer, is hoping to garner the support of the conservatives by offering to finance the €15.6 billion ($19 billion) tax cuts with less borrowing and a larger share from privatization funds.

"The new proposal calls for three-fourths of the costs of the to the federal government being financed without new borrowing," a government source told the Reuters news agency. "It is conceivable that this could be done with higher privatization revenues."

Schröder’s decision to personally attend the meeting highlights how important he considers pushing through the reforms before the Christmas break. He has tied his political fate to the so-called “Agenda 2010” package of sweeping reforms designed to spark growth and trim the country’s bloated welfare state.

Schröder eager for deal

“I’m – as you know – willing to compromise and I expect that from the other side too,” Schröder told journalists on Sunday.

The two leaders of the conservative opposition, Angela Merkel from the Christian Democratic Union (CDU) and Edmund Stoiber from the CDU’s Bavaria sister party the CSU, both also attended the meeting Sunday. However, ahead of the meeting it wasn’t clear if what Schröder was bringing to the negotiating table wouldn’t be enough to get the conservatives on board.

"We won't accept a bad deal," she said, according to Reuters. "There won't be any lousy compromises that only lead to a few days of peace."

While it could appear that the opposition has the upper hand in the talks because of Schröder’s strong desire for a deal, the conservatives are also aware most Germans would be upset if the CDU appeared to block the economic reforms for their own political gain at a time when the country is suffering from low growth and high unemployment.

“A total failure won’t happen,” Merkel told the Bild am Sonntag newspaper.