Progress on Budget as Coalition Deadline Looms

The Social Democrats (SPD) and Christian Democrats (CDU) officially have until Saturday to complete their talks and finalize a coalition deal that can be presented to party conventions for approval later this month.

Financial experts on both sides have been making positive noises all week that a deal on the most contentious issues, such as raising taxes and slashing subsidies, is creeping ever closer.

Reports from sources close to the talks said the parties have agreed on more than 20 billion euros ($23.64 billion) in savings -- roughly half the amount they need to bring Germany's budget back in line with EU regulations.

Dismissal laws to be relaxed

There has also been progress on the issue of labor market reforms, with the parties agreeing to relax rules on workers' protection against dismissal in favor of employers. In future, legal protection against dismissal won't come into effect until a person has worked for an employer for two years.

Germany's laws protecting employees against dismissal have been cited as an obstacle to the creation of new jobs. Currently, businesses with more than five employees can only terminate employment if the conditions of the dismissal statute -- which practically excludes dismissals unless they are based on operational requirements -- are met.

Key issues being deferred

While the country focuses on issues around budget cuts, the parties are deferring discussion on other key policy areas in order to ensure they meet the Nov. 12 deadline for a coalition deal.

Talks on reforming the healthcare system, for example, may be put off until next year. The future coalition partners have also failed to agree on what to do about the phase-out of nuclear energy. While the SPD favors sticking to the current agreement to shut down the last of Germany's nuclear reactors by 2020, the conservatives favour a plan to extend their operation.

"Positive signals"

On Wednesday, coalition talks resumed with the question of how to lower labor costs on the agenda. The future head of the SPD, Matthias Platzeck, was buoyed by the results of the past day.

"I think that what we agreed on in the last 24 hours is sustainable and delivers positive signals," Platzeck said.