1. Of course he's going to try and win the election, but even so he'll still be in deep doodoo. The Bundesrat (the council of the federal states) is squarely in the hands of the other party and will thus block him on virtually every important legislative initiative.


2. Your inability to remember the woman's name (Angela Merkel) is more a testimony to her charisma than to your memory. Snark aside, their platform includes an increase in the VAT from 16% to 18%, to be applied to lower the cost of unemployment insurance. The Liberal (read: "Free Market") party, the prospective junior partner in the coalition, has objected most strenuously to this plank.

FWIW, I think it's not a bad idea; Germany's current VAT rate is among the lowest in Europe, so there is scope for such a move. Beyond that, one of their tenets is that unemployment is so high because of the social benefits, which are financed through payroll deductions and matching employee contributions (instead of primarily through tax revenues, as in Skandinavia). These deductions+contributions (unemployment, old-age, health, long-term care) together are equivalent to > 40% of income.

Beyond that, they have not announced any specific changes to the tax code or to social programs (although one might expect something fairly radical here once they get into office.) They have declared that they want to make it easier to get rid of workers.

The fact is that what we're experiencing right now is a top-down disaster. -Paul Krugman

The most vocal opponent to this increase is Guido Westerwelle, head of the FDP (Free Democrats or Market Liberals), who has said that there will be no tax increases with them in the administration.  He argues that this is unecessary and would stiffle consumer activity, thus hurting the economy.  Now, since it is very likely that the CDU will form a coalition with the FDP it seems that there is a conflict waiting to happen.

It is, however, very interesting that a lot of people in the FDP agree with the increase and the Westerwelle hasn't commented on the recently passed manifesto (he's on vacation, but that hasn't stopped him to comment before).  So my take is that all this talk is to position the FDP as the party that won't do tax increases, which is a very popular position in Germany, but will cave in the end.

As for the increase itself, I think it is sound policy if it goes along with radical slashing of unnecessary subsidies.  The problem in Germany is that the state is practically broke.  I think I read in a recent Spiegel that we pay 25% of the budget as interest for loans, but that number seems awfully large, so I might be wrong.

Also, it is important to remember that while the CDU wants to increase the VAT it wants to decrease other taxes.  I'll try to get a better picture of their manifesto, before I'll comment on that.