German coalition: Concessions but Merkel will get her way

The "six eyes" of Sigmar Gabriel, Angela Merkel and Horst Seehofer

Germany's Angela Merkel has sewn up a coalition with the Social Democrats and a third term in power, but how much has she had to give away?

It was a "Six-Eye Negotiation" - in German, an "Unter Sechs Augen Gespraech". Three leaders, and so three pairs of eyes, sat down together in the small hours in a private room and haggled amongst themselves, eyeball to eyeball.

In the 185-page agreement which resulted, the Social Democrats (SPD) came away with a minimum wage of 8.50 euros (£7.10) an hour, uniformly applied across the country. The counter-argument had been that insisting on the minimum wage in the old East Germany would dent the region's ability to attract work.

The SPD's chief negotiator Sigmar Gabriel also got a lowering of the retirement age and some extra public spending. That may be welcomed by those outside Germany, who have argued that the country is "beggaring its neighbours" by not increasing German spending to match the country's amazing excess of exports over imports.

The SPD also secured the introduction of a minimum percentage of women on German company boards.

For her part, Chancellor Merkel got an acceptance from the SPD that its election demand of higher taxes on the rich would not happen. She also emphasised that the new government would continue to balance its budgets - there will be no move away from the belief that spending is tied to revenue.

Road-toll diversion

The third pair of eyes in the room belonged to Horst Seehofer, the leader of the Bavarian Christian Social Union, sister party to Mrs Merkel's CDU. He got the inclusion of his pet policy: foreign drivers should pay more than Germans to use German roads.

A lot of people involved in the broader negotiations had poured cold water on this, saying it was unworkable and illegal under European law. One SPD leader said the private-car road-toll would be introduced on the day that Christmas and Easter coincided.

But it would be unwise to discount Mr Seehofer. He has clout. Apart from anything else, Mrs Merkel needs CSU votes just as much as SPD ones. If the SPD can hold out for its measures, so can the CSU.

In Austria, for example, everybody has to buy a sticker to drive on certain toll motorways, and the idea might be to make the same system apply in Germany, but with German drivers able to claim the money back. This, clearly, is a scheme which is fraught with difficulty - and Mr Seehofer has yet to say exactly how it would operate.

Left queasy

Those bumps in the road aside, the other major roadblock will come when the membership of the SPD votes on whether to accept the "six-eye" deal.

The agreement was the result of hard bargaining

The 474,000 card-carrying members of the party will take some persuading. Many of them feel that they emerged damaged from the previous "grand coalition" between 2005 and 2009. These sceptics on the left think that it would be better to work with the Left Party (Die Linke) and the Greens, than with the conservatives.

But a hard-sell by the SPD leadership will still take some resisting. The rank-and-file will be told that to say "no" to governing with the conservatives is to say "no" to a minimum wage, which on some estimates would increase the pay of 17% of the workforce, and an even higher percentage in the East.

There are concerns about all this. Ten years ago, Germany was perceived as "the sick man of Europe", with its industry becoming uncompetitive. The government - ironically a Social Democratic government - shook up the labour market, making it easier to hire and fire and lowering the safety net for those out of work. The result has been an increase in the numbers of the low-paid, about whom the current leadership of the SPD is so worried.

Merkel dominant

The chairman of the Council of Economic Experts which advises the government, Christoph Schmidt, told the BBC: "Those changes made Germany more competitive. They were the basis for the resilience that Germany has shown during the recent crisis.

"Turning back on these reforms is something which is really dangerous. Making it harder for low-productivity German workers to integrate into a prosperous society seems dangerous. It would be good news for those in our society who have difficulties earning high wages, if this flexibility of the German labour market remains".

But Chancellor Merkel is not going to undo much of what has underpinned Germany's economic strength.

She remains dominant. She may need SPD votes to give her an absolute majority in parliament, but she - and they - know that the electorate spoke decisively in her favour at the election. It was a stonking victory that belies any apparent equality of the three pairs of eyes in the final session of horse-trading.

At the end of it all, economic policy may be a little less strict on spending, but there will be no wholesale undoing of her past policy. Indeed, it may become easier for her to govern. In the past, tough measures on Europe, for example, had to be won on the floor of the Bundestag after debate and division. In future, the argument will be in private within the rooms of the grand coalition.

Some members of the SPD, for example, have been scornful of the desire of British Prime Minister David Cameron to renegotiate Britain's relationship with the European Union. But she is thought to want strongly to keep Britain inside the EU. When the sandwiches arrive and the matter is discussed privately within the government, few would bet against her getting her way.