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Yahoo! My Yahoo! Mail More Yahoo! Services Account Options New User? Sign Up Sign In Help Yahoo! Search web search Home Singapore Asia Pacific World Business Entertainment Sports Technology Africa Europe Latin America Middle East North America Merkel readies for clashes with tax-slashing new partners AFP - Wednesday, September 30 Send IM Story Print Interactive graphic on Germany as Chancellor Angela Merkel sets to work on a new centre-right coalition after clinching a second term. BERLIN (AFP) - – Tension mounted within Chancellor Angela Merkel's new coalition Tuesday ahead of tough talks on how to get Germany out of a deep economic slump, while the head of her defeated rival party quit. The conservative Merkel, 55, won a second term in Sunday's election, though her Christian Democrat (CDU/CSU) bloc lost support, notching up its worst election score since 1949. Meanwhile, the head of the centre-left Social Democrats, Franz Muentefering, announced he was quitting after a defeat that relegates the party to the opposition following 11 years in government. Aiming to pep up an economy in its worst slump since World War II and set to shrink by up to six percent this year, Merkel has teamed with the Free Democrats (FDP) and jettisoned her awkward "grand coalition" partners, the Social Democrats. The FDP has vowed to push through 35 billion euros (51 billion dollars) in tax cuts, trim the social-security system and make it easier for firms to hire and fire. But it is far from certain that Merkel, who said in her victory speech that she wanted to be the "chancellor for all Germans", will emerge as a neo-liberal heroine in her second four-year term. Reax: World leaders congratulate Merkel Given the parlous state of Germany's public finances, her party has promised smaller tax cuts of 15 billion euros. And with more than half of voters supporting neither her nor the FDP, and with unions strong, she is wary of protesters hitting the streets. "We are a people's party, and within this there is always the economic wing and those who lean more towards the social side," Merkel said on television late Monday. "As chair of the party and chancellor it is my job to combine economic good sense with social justice." Merkel's decision to sweeten the sale of General Motors' Opel unit, which employs 25,000 people in Germany, with 4.5 billion euros worth of state aid was sharply criticised by FDP leader Guido Westerwelle before the vote. He also hit out at Merkel's five-billion-euro "cash for clunkers" scheme and slammed her 70-billion-euro efforts to stimulate the economy as "probably the most expensive election campaign in the history of the federal republic." The parties are also at odds over surveillance measures introduced in response to threats from Islamic extremists, a minimum wage and reforms to the health care system. Merkel and Westerwelle met Monday, and negotiations on a coalition pact are to start in earnest next week. But first Merkel must agree a common line with the Christian Social Union, the CDU's powerful Bavarian sister party, which has been more stringent on tax cuts, and whose relations with the FDP are frosty. The chancellor said Monday she wanted her new government in place before November 9, when world leaders will gather to mark the 20th anniversary of the fall of the Berlin Wall. In her first term, Merkel was stuck in an uneasy coalition with the Social Democrats (SPD) and avoided making any painful reforms, even rolling back some of the cuts made by her SPD predecessor Gerhard Schroeder. The FDP and the more business-friendly wing of the CDU/CSU are hoping that now that Merkel is free of the SPD, she will show her true colours. Doubts remain though over what the true colours of Forbes magazine' most powerful woman on the planet really are, however, with many observers seeing her something of an enigma. "Over the last four years her position has become quite blurred," Goldman Sachs economist Dirk Schumacher told AFP. "Where does she actually stand?" "The coalition talks with the FDP will be the moment of truth," the Financial Times Deutschland said in an editorial. The SPD, meanwhile, was reeling after recording its worst postwar score. Besides the announcement from Muentefering, an old Schroeder ally, general secretary Hubertus Heil also said he would not stand for another term. Peer Steinbrueck, finance minister, said he was stepping down as one of the party's three deputy chairs. Frank-Walter Steinmeier, foreign minister and vice-chancellor as well as challenger to Merkel in Sunday's election, survived the bloodbath and was nominated as the party's parliamentary head. 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