Future Merkel Government Faces First Major Test Monday

The agreement sealed Friday by Merkel's Christian Democrats (CDU) and outgoing chancellor Gerhard Schröder's Social Democrats (SPD) for a power-sharing government is to serve as a policy roadmap for a four-year term.

But the members of both parties as well as the CDU's Bavarian sister party, the Christian Social Union, must still give their blessing and sparks are expected to fly when the three parties meet separately on Monday.

"I expect a few serious rows Monday in Karlsruhe," said deputy SPD leader, Ute Vogt, referring to the congress's venue in southwestern Germany.

"But in the end the SPD will rise to its duty."

If the parties accept it, the program will be formally signed Friday in central Berlin and three days later Merkel will be elected as Germany's first female chancellor by the Bundestag or lower house of parliament.

"A marriage of convenience"

Many Social Democrats are angry about a proposed three-point hike in the value-added tax to 19 percent in 2007 -- blasted by critics as the biggest single tax increase in German postwar history.

They also oppose plans to loosen protections against dismissal of staff.

Meanwhile conservatives are frustrated that the VAT rise will
not be fully earmarked for cutting non-wage labor costs with the aim of bringing down the 11-percent jobless rate. Both sides were forced to back away from their campaign promises when neither won a ruling majority in the September general election. Hard-fought compromises were the result of four weeks of horse-trading.

"This is not a love match but a very sober marriage of
convenience," incoming SPD chairman Matthias Platzeck told reporters Saturday.

Measures don't go far enough: critics

The German economy -- the biggest in the European Union -- is saddled with chronic unemployment and near-zero growth.

"Our aim is to put an end to this downward trend and reverse
it," Merkel told a news conference Sunday. "I foresee that Germany should in 10 years' time be able to say it is back among the top three countries in Europe."

But critics point out that the new deal will do little to put Germany's stalled economy back on track or get more than four million Germans back to work.

"I simply cannot recognize the influence of the (Christian) Union," said conservative finance expert Friedrich Merz, a longtime Merkel rival with a strong following in the party.

"We are paying a damn high price for the chancellery," he told weekly Frankfurter Allgemeine Sonntagszeitung.

Employers' Association President Dieter Hundt said that while the government had set the right goals of slashing unemployment and the spiraling public deficit, the measures it had chosen were counterproductive.

"The fact the grand coalition is settling down to work with plans for a drastic tax hike will have negative consequences for economic growth and employment in Germany," he said.

Business leaders cautiously hopeful

But Federation of Industry President Jürgen Thumann said business leaders were grudgingly accepting that a left-right government spanning the political divide could offer a chance to implement a handful of key economic reforms.

"It will not liberate the economy or allow new jobs to be created immediately. But the pact does offer a few opportunities for this term so that things were gradually get better in this country," he told Sunday's Bild am Sonntag.

Political scientist Peter Lösche of the University of
Göttingen said there was no alternative to the current alliance and that the result was an agreement driven by pragmatism.

"This is not a grand vision because grand visions are not
possible right now," he said of the government program. "But the fact that all the interest groups are crying out is a rather positive sign."

Schröder to bid goodbye to SPD

The SPD congress will also mark the party's farewell from Schröder after seven years in power.

He is expected to issue a passionate defense of the new "grand coalition" -- the alliance he had favored when campaigning for office in 1998 until the vote's outcome pushed him into a unprecedented grouping with the Greens party.