Merkel seals cabinet in German coalition talks
BERLIN (Reuters) - Chancellor Angela Merkel put the finishing touches on her new cabinet in coalition talks on Friday, naming hard-nosed ex-rival Wolfgang Schaeuble as finance minister to tackle a soaring budget deficit, party sources said.
Merkel's conservatives and the business-friendly Free Democrats (FDP) won a parliamentary majority in last month's election and needed to forge compromises on the cabinet and divisive issues like tax policy in order seal a coalition pact and take office next week as planned.
With Germany emerging from its deepest recession since World War Two, the finance ministry is seen as perhaps the most important post in the new government and Merkel was determined to win it for her Christian Democrats (CDU).
Multiple sources within the coalition talks said Schaeuble, 67, a former protege of Helmut Kohl who has earned a reputation as a hardliner on domestic security issues as Merkel's interior minister for the past four years, was set to take over the post.
"I think he's a tough cookie and this is what will be needed," said Carsten Brzeski, senior economist at ING Financial Markets. "He is someone who would not be afraid of ruining his public image due to unpopular decision-making."
Joining Schaeuble in the cabinet, according to party sources, will be FDP leader Guido Westerwelle, 47, who takes over as foreign minister and is expected to ensure continuity in policy.
His party colleague Rainer Bruederle, 64, becomes economy minister, taking the place of Karl-Theodor zu Guttenberg, the 37-year old rising star from Bavaria, who gets the defence portfolio and will have to defend Germany's military presence in Afghanistan to a sceptical public.
Merkel wants to be sworn in next week and senior figures say they expect a final coalition deal by late on Friday. A formal presentation of the cabinet and the new government's policy blueprint is expected on Saturday.
Her election victory allows Merkel to end her awkward four-year "grand coalition" with the Social Democrats (SPD), giving her the centre-right government she wanted but failed to get back in 2005.
But there is no sign she will abandon her cautious policy approach and press for radical reforms with the FDP.
The parties have already forged compromises on issues from nuclear energy to foreign policy and healthcare. But they were working late on Friday to reconcile their promise of tax cuts with a separate pledge to bring the deficit under control.
Merkel must find an estimated 50 billion euros (46 billion pounds) to plug a hole in the budget and deliver tax relief that is expected to total about 20 billion euros.
Schaeuble will get the task of steering financial policy, taking the place of Peer Steinbrueck, the SPD finance minister who shaped Berlin's response to the financial crisis and alienated allies like Switzerland and Britain with public tirades against tax havens and Anglo-Saxon capitalism.
Confined to a wheelchair since a 1990 assassination attempt, Schaeuble took over from former Chancellor Kohl as head of the CDU in 1998, but Merkel was instrumental in pushing him out of that post two years later in the wake of party funding scandal.
He has patched up relations with her since then, but is independent-minded and has not shied away from confronting Merkel on certain issues.
Before the election, Schaeuble indirectly criticised her plans to offer 15 billion euros in tax cuts, saying there was little room for them given Germany's strained finances.
He stonewalled when U.S. President Barack Obama tried to convince Germany to take on inmates from Guantanamo Bay prison earlier this year, although he is well known in Washington and was seen as an ally on terrorism and other security matters.