Germany: Merz strikes coalition deal with SPD, but his promises require much more

In a significant political development for Germany and the broader European Union, conservative leader Friedrich Merz and the centre-left Social Democratic Party (SPD) reached a comparatively swift coalition agreement, clearing the way for the formation of a new German government. The deal took ‘just’ 45 days after Merz’s Christian Democratic Union (CDU) secured victory; usually, coalition talks often drag on for months. The 144-page coalition agreement promises tax cuts and a tougher stance on migration.

The agreement was forged under intense international and domestic pressure, as Germany faces an increasingly volatile global environment marked by economic uncertainty and geopolitical instability. The recent imposition of 20 per cent tariffs on EU goods by US President Donald Trump (which has been paused for three months) and the ongoing war in Ukraine, started by Russian President Vladimir Putin, have created what Merz described as “a situation of growing global political tensions”. “We have a strong plan before us with which we can move our country forward again together,” Merz stated during a press conference in Berlin.



“Above all, it is a very strong and clear signal to the citizens of our country and also to our partners in the European Union. Germany is getting a government that is capable and strong.” A Government Born of Crisis Germany has been operating under a fragile minority government since November, when the previous three-party coalition led by outgoing Chancellor Olaf Scholz collapsed amid deep disagreements over fiscal policy.

The new agreement marks a return to a more stable two-party alliance, and it sets the stage for Merz to be sworn in as Germany’s next chancellor, likely in early May. The urgency behind the coalition deal stems from dual external shocks: Trump’s aggressive trade policies and Putin’s continued military aggression in Ukraine and their bonhomie to the exclusion of the EU and Germany. The paused tariffs above 10 per cent for US trading partners are a brief reprieve that did little to diminish concerns in Berlin about Germany’s export-heavy economy and the fraying transatlantic alliance it has long relied upon.

“Recent decisions by the US government have triggered new turbulence,” Merz said. “We don’t yet know which direction the international situation will take. But that’s why our message today is all the clearer: We want to and we will help shape change in the world for Germany.

” According to the 144-page coalition agreement, Germany’s centre-left Social Democratic Party (SPD) is set to control seven ministries in the incoming federal government—more individual portfolios than the conservative Christian Democratic Union (CDU), which will head six ministries. Despite this, the balance of power tilts toward the CDU, which secured 28.5 per cent of the vote in the February 23 federal election, compared to the SPD’s 16.

4 per cent. Crucially, the CDU will lead the chancellery under Friedrich Merz, giving it command of the government’s overall direction. When combined with its Bavarian sister party, the Christian Social Union (CSU), which will oversee three ministries, the conservative bloc will hold a total of nine ministries—cementing its dominant position within the new coalition.

Defence and Economic Plans A centrepiece of the new coalition agreement is a sweeping plan for public investment, especially in defence and infrastructure — an effort to counteract Europe’s increasing vulnerability in the face of Russian aggression and the US trying to wean away. The agreement includes commitments to debt-financed spending that has drawn praise from some European allies but stirred controversy at home. Despite his leadership in finalising the coalition, Merz faces criticism within his own ranks.

The deal’s reliance on borrowing has alienated parts of the CDU’s conservative base and provided fresh ammunition to the far-right Alternative for Germany (AfD), now poised to become the largest opposition force in parliament. Merz’s personal approval ratings have taken a hit since the election win. Economically, the coalition seeks to revitalise Germany’s competitiveness through a package of tax cuts and energy reforms.

Merz announced plans to reduce corporate income tax by one per cent annually starting in 2028, over five years. To address Germany’s high electricity costs, the government will reduce electricity taxes to the EU minimum, cut grid fees, and introduce an industrial electricity rate to support manufacturers. “These steps will strengthen Germany’s price competitiveness,” Merz explained, adding that the new measures aim to boost investment in domestic production and innovation.

Migration Sparks Sharp Debate One of the most contentious topics during negotiations was migration policy. With the AfD capitalising on public concerns over immigration, Merz’s conservatives pushed for tougher border controls and restrictions on asylum. The SPD, however, resisted measures that could undermine Germany’s commitment to humanitarian principles and EU solidarity.

In the end, the coalition adopted a harder stance without fully capitulating to right-wing demands. The agreement includes new border checks, the rejection of certain asylum seekers at national borders, and a “repatriation offensive” targeting individuals without legal status. The plan also suspends family reunification for asylum seekers and expands the list of “safe countries of origin” to streamline deportations.

Merz framed the policy as a pragmatic approach to a complex challenge. “We will largely put an end to irregular migration,” he stated. “Germany must protect its borders and restore trust in its immigration system.

” Europe and the World Watching As Merz prepares to assume the chancellorship, all eyes are on how his administration will navigate a rapidly shifting global landscape. His coalition must balance domestic discontent with international expectations, especially within the EU and NATO. When asked what message he would send to Trump, Merz responded, “Germany is back on track.

Germany will fulfil its obligations in terms of defence. And Germany is willing to strengthen its own competitiveness.” Whether Merz can deliver on those promises remains to be seen.

With a new coalition in place, Germany appears poised to reassert itself as a central force in European politics — and perhaps a more assertive partner on the global stage. The author is a former ambassador to Germany, Indonesia, Ethiopia, ASEAN and the African Union. He tweets @AmbGurjitSingh.

Views expressed in the above piece are personal and solely those of the author. They do not necessarily reflect Firstpost’s views..