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03/18/2010

It seemed like a sound political strategy. When German Chancellor Angela Merkel was re-elected last September, she and her new coalition partners from the business-friendly Free Democrats decided to hold off on major -- and potentially unpopular -- reform projects until this summer. The reason? They wanted to avoid doing anything to eat into solid popularity ratings ahead of May 9 state elections in North Rhine-Westphalia, Germany's most populous state and a key to Merkel's majority in Germany's upper legislative chamber, the Bundesrat.

The strategy, though, appears to have failed. Months of bickering between Merkel's conservatives and the FDP, led by Foreign Minister Guido Westerwelle, have soured voters on the Berlin leadership, with surveys showing that the FDP in particular has lost popularity. Indeed, the current CDU-FDP coalition in North Rhine-Westphalia is in danger of losing its majority.

In response, Merkel's government is planning to push ahead with plans for providing German tax payers with significant tax relief. According to a report in Thursday's Süddeutsche Zeitung, party leaders hope to agree on a tax cut plan worth between €5 billion and €10 billion, which would go into effect on Jan. 1, 2011.

Both the CDU and FDP denied they were planning to push through tax cuts. "The reports are not correct," said government spokesman Ulrich Wilhelm on Thursday, adding that the government had always made it clear that it wanted to wait for key tax data to be released on May 6 before they embarked on tax reform.

Looking for a Common Line

The plan is a far cry from the €24 billion in tax cuts Westerwelle's FDP had been seeking. Indeed, the party's insistence on massive tax cuts -- criticized by many in Merkel's party, and by the CDU's Bavarian sister party, the Christian Social Union (CSU) -- was a significant contributor to the at times bitter conflict which has paralyzed Merkel's government since it took office in late October.

Still, as starkly as the parties disagreed about the wisdom of major tax cuts at a time when Germany faces rising budget deficits and sovereign debt, the coalition likely chose to press ahead on the issue because other areas of disagreement remain contentious. Merkel's government has yet to find a common line on the future of nuclear power in Germany nor has it settled on how to adjust the country's welfare system. The issue of health care reform has also pitted the FDP against the conservatives.

Of particular concern ahead of the vote in North Rhine-Westphalia are the FDP's falling poll numbers. Whereas the party received 14.6 percent in general elections last September, a mere 7 percent said in February that they would vote for Westerwelle's party.

Scaring Away Voters

Part of that slide is no doubt due to political haggling in Berlin, but Westerwelle himself has done his part to scare away voters. His brusque comments about German welfare payments in February, his insistence on deep tax cuts despite the absence of a plan to pay for such a move, and widespread perception that Westerwelle is using his party's position in government -- and his own position as foreign minister -- to benefit party donors have all left their marks.

According to the Süddeutsche, coalition leaders will meet this Sunday to hammer out the details of the proposed tax cuts. Whether the plan will result in a boost to poll numbers ahead of the North Rhine-Westphalia election, though, remains an open question. A survey in January found that 58 percent of Germans -- and 53 percent of FDP voters -- were against significant tax cuts.