<TABLE cellSpacing=0 cellPadding=0 width=629 border=0><TBODY><TR><TD colSpan=3>Merkel to set new German agenda

</TD></TR><TR><TD vAlign=top width=416><!-- S BO --><!-- S IIMA --><TABLE cellSpacing=0 cellPadding=0 width=203 align=right border=0><TBODY><TR><TD> Mrs Merkel will fight budget deficits and 11% unemployment

</TD></TR></TBODY></TABLE><!-- E IIMA --><!-- S SF -->Angela Merkel is to chart Germany's course for the future in her first speech to parliament as chancellor.

She is expected to focus on the country's economic problems as it faces an 11% unemployment rate.

Mrs Merkel took office last week heading a "grand coalition" of conservative Christian Democrats and the centre-left Social Democrats.

The new government will be aiming to reduce budget deficits, and has already cut subsidies for home buyers. <!-- E SF -->

Mrs Merkel spent her first full day in office a week ago on trips to Paris and Brussels, visiting the UK a day later.

She made a point of stopping at Nato headquarters within hours of a visit to Paris - underscoring her stated intention of improving relations with the US.

Her predecessor, Gerhard Schroeder, angered Washington with his vocal opposition to the Iraq war.

She has said she will not reverse German policy of keeping troops out of Iraq.

She is already facing a difficult test - a German woman, Susanne Osthoff, has been missing in Iraq since Friday, and is believed to have been kidnapped.

The alleged abductors have demanded that Germany cut ties with the Iraqi government.

'Together'

Mrs Merkel's Christian Democrats (CDU) were forced into a coalition with Mr Schroeder's Social Democrats (SPD) after a tight election result in September.

That led to lengthy coalition negotiations before Mrs Merkel formally became chancellor on 22 November.

The coalition accord, Together for Germany - with courage and humanity, will be the basis for her speech in parliament, her spokesman Ulrich Wilhelm has said.

It includes calls for an increase to value-added tax (VAT), but a lowering of payroll tax.

It also envisions pension reform and raising the retirement age from 65 to 67. The coalition is also planning to give German states more control of issues such as the environment, while taking more power for Berlin to fight crime and terrorism. <!-- E BO -->
http://news.bbc.co.uk/1/hi/world/europe/4483900.stm

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