GERMANY: Chancellor Angela Merkel has promised to put wind in the sails of the German economy with a €25 billion investment programme and a promise that research spending will reach 3 per cent of gross domestic product (GDP) by 2010.
Business leaders have criticised the proposals as "a drop in the bucket" and a decisive U-turn for Dr Merkel away from her pre-election promises to reduce non-wage costs and loosen hire-fire laws.
"This is a programme for more growth and employment. We want to strike a balance between expectations of what we can afford . . . what is do-able and successful results," said Dr Merkel, striking a tone of compromise likely to become the trademark of Germany's grand coalition.
That tone of compromise extends to Berlin's plans for its six-month EU presidency in a year's time.
"We want to create a favourable climate to enable impulses for a successful completion of the constitutional process," says the document agreed yesterday.
The two-day cabinet retreat outside Berlin was billed as a trust-building exercise to help the new coalition parties work together in the grand coalition and to overcome political attack-instincts trained over the years.
Mr Franz Müntefering of the SPD, the vice-chancellor and labour minister, said the investment package represented a chance for Germany that "if missed today, we would never catch up on".
"The mood in the country and the economic prognoses suggest that there is a readiness for change," he said. "Many in this country understand well that there are good chances for a new start in 2006."
The key point of the government's programme is an extra €6 billion for research and development to encourage greater contacts between laboratories and future business markets.
By 2010, Berlin's aim is that research spending will reach 3 per cent of GDP, with one-third coming from public funds and two-thirds from private industry.
Germany's small and medium-sized enterprises will benefit from higher tax-free allowances on turnover while homeowners will be able to write off against their taxes home renovation bills up to €1,200 annually.
The federal government will spend an extra €4.3 billion annually until 2009 on infrastructure, with an emphasis on rail and waterway development.
The parties also agreed on a series of measures to make Germany more family-friendly. Parents who stay at home with children born from next January will be entitled to a "parent allowance". It will replace the child allowance and give the non-working parent up to 67 per cent of their lost income to a maximum of €1,800 monthly.
The programme promises a further €480 million in tax credits for childcare, allowing working parents write off costs over €1,000 per child annually for those under six. For children over six, all childcare costs can be written off.
The programme got a mixed reception from business leaders, but was praised by some political observers.
"The government hasn't got one task but two contradictory ones: encouraging employment and growth yet trying to consolidate the budget," said Prof Thomas Jäger, political scientist at the University of Cologne.
The growing trust between the coalition partners may be tested by several contentious issues in the coming months. Reform of the health system is likely to lead to disagreements, as are plans to introduce a minimum wage and a so-called "combiwage", with government subsidies for the low-wage sector.