Policy deals take pressure off Merkel at home

BERLIN, June 19 (Reuters) Germany's ruling parties reached a compromise today on two contentious policy issues, averting a coalition crisis that threatened to haunt Chancellor Angela Merkel as she prepares a key EU summit this week.

The compromise on extending minimum wage coverage and reforming nursing care insurance allows the chancellor to focus on her plans to cut a deal on a new treaty for the bloc at the June 21-22 meeting of EU leaders in Brussels.

Prior to today's agreement between Merkel's conservatives and their Social Democrat (SPD) partners, relations in the coalition had been marred by bitter infighting as the SPD sought to shore up its flagging support among voters.

The deal allowed the ruling parties to paper over their differences but tensions still simmered over the issue of a flat minimum wage, which the SPD wants to shield German workers from wage dumping -- undercutting by cheap foreign labour.

''The lesson from this is that one cannot introduce a minimum wage with the conservatives, but rather that you have to go against them to get it,'' said Vice Chancellor Franz Muentefering, a Social Democrat.

Merkel has had to strike a delicate balance to reconcile the interests of her conservatives and the SPD -- two political groupings which have spent most of the past 60 years as bitter rivals, but who were forced into a coalition in 2005.

While her reputation abroad has grown thanks to successes on the international stage, most recently with a G8 agreement to push for a new accord on global warming, her domestic agenda has been held back by conflicting interests within the coalition.

Peter Loesche, professor of political science at Goettingen University, said the deal took heat off Merkel on the domestic front in the short term but that the minimum wage issue was likely to hot up again in the run up to the 2009 elections.

''This means that for the moment the conflict over the minimum wage is settled, but at the same time that the SPD is keeping it as an issue for the Bundestag elections. If no better issue comes along, this should be a central issue,'' he said.

Merkel will aim to build on her success at the Heiligendamm G8 summit when she goes to Brussels in search of agreement on a new treaty to replace the defunct EU constitution. Germany holds the EU's rotating presidency until the end of June.

At the meeting in the chancellery that began yesterday evening, coalition leaders agreed to extend a law, which would enable more sectors of the economy to set their own minimum wage, a compromise that had been widely predicted by analysts.

The SPD, which recent opinion polls have shown lagging their rivals by nearly 10 percentage points, had been pushing for the introduction of a flat minimum wage for the entire economy.

Conservatives had rejected this proposal outright.

Today's compromise foresees extending the so-called ''Entsendegesetz'' law to additional industries.

REUTERS PY RAI2357