Formal negotiations on a grand coalition between Germany's chancellor-designate Angela Merkel's Christian Democratic Union (CDU) and incumbent Chancellor Gerhard Schroeder's Social Democratic Party (SPD) started on Monday.

"There will be tough negotiations," said Merkel, adding that both parties were very serious about clinching out an agreement.

Difficult points facing them would be labor market reforms, meant to lower Germany's jobless rate of more than 11 percent.

The CDU wants to ease the hiring and firing laws to cut labor costs, but the SPD is strongly against such moves.

The SPD is also opposed to Merkel's calls to raise the sales tax to 18 percent from the current 16 percent.

Local media saw signs that Merkel has agreed to water down her more radical proposals to boost the economy, such as cutting employers' costs.

The conservatives have singled out such issues as making a new budget, reforming the labor market, welfare system and tax system to promote economic growth that must be agreed on in the negotiations.
 
The first grand coalition government in Germany since the 1960s is expected to be in place till mid-November, as the negotiations on the government's program could take four or more weeks.

(Xinhua News Agency October 18, 2005)