Berlin - Chancellor Angela Merkel's new coalition deal was already under attack Tuesday as the ink was still drying on the freshly agreed government charter signed by her Christian Democrats (CDU) and the Free Democrats (FDP). Three weeks of negotiation between the CDU, the FDP and the CDU's Bavarian Christian Social (CSU) sister party produced a broad statement of intent, while many key policy details remained up for discussion.
Merkel, the FDP's Guido Westerwelle and Horst Seehofer of the CSU, agreed to target a tax cut amounting to 24 billion euros (36 billion dollars) annually by 2011, a move which they hoped would pull Germany out of the economic crisis, but will saddle the country with unprecedented debt.
Senior CDU members in Germany's federal states voiced concern over the strains this would place on the country's ballooning budget deficit, after the deal was signed.
"If the tax plans have a demonstrably negative effect on the state budget, we will not be able to agree to them," the premier of the state of Thuringia, Christine Lieberknecht of the CDU, told German daily Welt.
The CDU finance minister of Baden-Wuerttemberg, Willi Staechele, warned of a "new spiral of debt," adding that his state alone could face deficits of 1.7 billion euros.
The incoming government could struggle to implement its proposed tax reforms without the full backing of the slender CDU-FDP majority in the Upper House of government or Bundesrat, representing Germany's federal states.
However, Merkel has insisted that the government charter, drawn up by the centrist CDU and the free-market FDP, is the only way to overcome the economic crisis.
"We have decided to follow a path that focuses entirely on growth," Merkel told a party conference. "That doesn't offer any guarantee that it will succeed. But it offers the chance of success," Merkel added.
Business leaders broadly welcomed the CDU-FDP proposals. Dieter Hundt, president of the German Employers Association, said they were a "good compass" for the coming years.
"The agreed tax cuts are brave and will strengthen growth and consumption, said the President of Germany's retail traders' association (HDE), Josef Sanktjohanser.
Merkel's CDU and the FDP, led by Guido Westerwelle, had campaigned on a centre-right platform based on the promise to cut taxes.
Only when the parties sat down to hammer out a compromise did they voice the fear that Germany's ballooning budget deficit left little room to reduce taxes and balance the budget.
Incoming Finance Minister Wolfgang Schaeuble has since warned that Germany will have to deal with an "enormous amount of debt," and would not be able to produce a balanced budget in the next four years.
Schaeuble, known for his ability to push through tough decisions, defended the proposed measures as a necessary part of "anticyclical" economic behaviour, encouraging spending as a way out of the crisis.
German debt is expected to balloon to 2 trillion euros by 2013, dwarfing the previous record of 40 billion euros of deficit in 1996.
Plans to tackle Germany's expensive health care system, another key pillar of the government charter, remained scant on detail after the parties struggled to agree on the degree of overhaul the system needed.
While the CDU and FDP promised to restructure the system from 2011, it was left unclear whether the FDP could push through its demands to scrap a health fund, which bundles contributions and distributes them to the insurance companies who settle patients' bills.
The debate continued after the coalition deal had been reached, as the premier of North Rhine Westphalia, Juergen Ruettgers of the CDU, rejected an imminent reform of the health care system.
Ahead of state elections next year, Ruettgers opposed an increase in health care costs and insisted that low earners must not be disproportionately penalized.
The FDP was able to shape foreign policy pledges, including plans to phase out Germany's naval deployment off the coast of Lebanon, where it forms part of a UN operation.
The party of Westerwelle, nominated as the new foreign minister, also pushed through the proposal to continue "open-ended" EU membership talks with Turkey.
As the coalition agreement was signed into force, Merkel warned of tough times ahead. "There will undoubtedly still be difficult confrontations," the CDU leader said, as a warning to their new partner.
Merkel called for "seriousness" in light of the continuing economic crisis, as the FDP remains buoyed by its return to government after 11 years in opposition.
"I say this because I sometimes have the impression that this need for seriousness may not have sunk in everywhere yet."
