Economic ills drive Kohl into coalition pact

Germany's vast economic problems have driven Helmut Kohl into the embrace of the opposition, opening the way to a grand coalition in all but name.

Under a deal to be thrashed out on Monday by Mr Kohl and Oskar Lafontaine, the leader of the Social Democrats, the big-gest opposition party will co-sponsor the tax reform bill, and will be consulted on this year's spending cuts. As a consequence of their pact, Mr Kohl will no longer be able to tout the tax package as his own in next year's election campaign.

In return, the Social Democrats will be able to tilt taxation in favour of their members, and gain valuable influence in government after 15 years in the political wilderness. But both sides stress that all Germans will benefit from the arrangement, because many of the urgent reforms the country needs to regain its competitiveness will be introduced in 1998.

Rocked by spiralling unemployment and internal strife, the government has abruptly ditch-ed its intransigence, and is now striking a meek tone in its dealings with the opposition. Wolfgang Schauble, Mr Kohl's deputy, yesterday gave the first clear indication that the Social Democrats' vision of social justice can be accommodated.

The SPD appears willing to accept a cut in the top rate of income tax from 53 to 39 per cent, but are holding out against changes that would hit blue-collar supporters. Mr Schauble suggested that he would be prepared to "compromise" over new taxes introduc- ed for overtime and weekend work - the opposition's main bone of contention. The Social Democrats are also firmly opposed to an increase in VAT to compensate for revenue lost in the top bracket.

The government is also looking for savings of several billion deutschmarks this year in its effort to meet the Maastricht criteria for monetary union. Though it has a comfortable enough majority in the Bundes- tag, many welfare cuts must be approved by the Social Democrat-controlled upper chamber, the Bundesrat. The opposition had promised a gridlock, and so far it has been true to its word.

The rapprochement over the next months will shift the thrust of government policy towards the left, outflanking Mr Kohl's right-wing junior coalition partners, the Free Democrats, who have been holding the Chancellor hostage to their laissez-faire agenda. Mr Kohl himself will only benefit in the long term if he succeeds in reducing unem-ployment before the elections.

However, Europe's longest-serving statesman is slowly reasserting himself. In recent polls, he has re-emerged as the Christian Democrat with the highest personal rating. All that is needed now is the announce- ment that, with the greatest reluctance, he is willing to lead his party into the next elections.

Mr Kohl had not planned to make a statement until summer, but internal unrest has forced his hand. Addressing a closed meeting of Christian Democrats earlier this week, he said: "I know my duty," he said in an emotional speech described by the party faithful as "vintage Kohl".