After seven hours of talks, German leaders emerged in the early hours of Thursday morning with a health-reform deal. While the compromise is far from perfect, it has saved the fragile coalition government -- at least for now. 

German leaders reached a compromise on the reform of the country's health service on Thursday, averting a crisis within the grand coalition government. The deal was only possible by postponing the core element of the health reform plan -- a central federal health fund. 

"We have agreed on a far-reaching reform," Merkel told journalists on Thursday morning. "This was only possible because all parts of the grand coalition were prepared to give ground."

One of the most important jobs on the coalition's agenda has been reform of the country's Byzantine health system. Health reform, in fact, has come to be seen as a test of Chancellor Angela Merkel's leadership and the viability of a continued coalition government.

For months the leading parties have been at loggerheads over how to streamline the health system. In July the coalition presented a blueprint for reform, but faced criticism from health experts and economists, as well as internal criticism from each party.

Medical costs in Germany are soaring, with insurers paying a total of €140 billion a year. The German method of paying for its national system through insurance contributions -- twinning those of employers and employees, usually at around 14 percent of salary -- has made health care overly bureaucratic and unfair. The government's funds are inadequate to cover the actual health costs in the country and the system also serves to dissuade employers from hiring extra staff due to the burden of high insurance costs.

Since Merkel's announcement in July of a "breakthrough" on health reform, there have been bitter disagreements over the details. With Merkel's conservative party suffering its worst poll ratings since reunification in 1990, the bickering threatened to derail her fragile coalition with the center-left Social Democrats (SPD). 

On Wednesday evening, leaders of the two parties met in Berlin to agree on a plan. After a marathon seven-hour session, Chancellor Angela Merkel of the Christian Democrats, Edmund Stoiber of the sister Christian Social Union party, and Kurt Beck, chairman of the SPD, announced at around 2:15 a.m. on Thursday that health reform would begin, as planned, on April 1st, 2007. 
There were many points left open to further discussion, but party leaders were under pressure not to leave the talks empty-handed.

Still no central health fund
The big surprise was that the core element of the plan announced in July -- the creation of a central health fund -- was postponed by six months, from mid-2008 to Jan. 1, 2009. This was justified on the basis that all other elements of the plan had to be in place before a central fund could exist.

The deal won't silence Merkel's critics, especially those who think her overall reform plan is too expensive. For now, though, it should ease tension between the ruling parties. SPD chairman Beck called it "a good compromise" and said, "It was important for us to maintain the principle of solidarity."

However, CSU leader and Bavarian premier Edmund Stoiber did not seem to be singing from the same hymn sheet as the other two leaders, saying that the agreement was subject to examination in the context of the draft legislation. He is wary of that the reforms will inflict greater costs on rich states such as his own Bavaria, in order to subsidize poorer states, particularly those in the former East Germany.