‘Red-black’ grand coalition established in Germany

A “red-black” grand coalition has been established in Germany. Germany’s prospective chancellor, Friedrich Merz, presented the coalition agreement made by the center-right CDU/CSU bloc with the Social Democrats (SPD).

“The most important message to Donald Trump is that Germany is back on track,” said Merz, adding that Germany will once again be “a very strong partner within the European Union.”

The agreement between Merz’s Christian Democrats and Social Democrats, announced on Wednesday, came about six weeks after the federal elections in Germany.

Although some key aspects of the CDU leader’s transformation plan fundamentally clashed with the SPD’s agenda, the two centrist parties were driven into coalition talks partly because the fragmented election results left other mainstream coalition options without a majority.

The SPD reached an agreement with the CDU/CSU on immigration reform but was reluctant to yield to the conservatives’ demands for tax cuts for businesses and high earners. Ultimately, both parties bowed to a compromise.

For example, in the field of foreign policy, Merz was given the authority to establish a new “national security council” to coordinate on key issues. On the other hand, a clear commitment was not made by the next government regarding the delivery of Germany’s long-range Taurus cruise missiles to Ukraine, which Scholz blocked and Merz promised.

The CDU/CSU plan, which stipulated that Merz be given direct decision-making and coordination powers on controversial EU policy files, was also relaxed.

Instead, Germany will establish an “EU monitoring process,” and Merz’s chief of staff will coordinate Germany’s position on EU legislation “in advance” with the responsible public officials.

On immigration, stricter border enforcement, as foreseen in leaked drafts, was carried over into the final agreement, including ongoing controls along Germany’s border “until a functioning external border guard is established” along the EU’s external borders.

The agreement also signals openness to possible migrant return centers at the European level.

However, Merz’s controversial demand to turn back asylum seekers at Germany’s borders will only take place “in coordination with European neighbors,” a vague expression that Merz again failed to clarify on Wednesday.

In the financial area, Germany will reduce the corporate tax rate cumulatively by five percentage points over five years. To support the private sector, the coalition is planning a “Germany Fund” that will subsidize capital investments.

While a “Germany Fund” is supported with 10 billion euros of public money, an ambitious presentation for private investors aims to increase this to 100 billion euros to support newly founded companies and grow businesses. The government is also promising an “investment allowance,” which means a reduction in corporate tax to encourage investment.

The parties are promising to lower electricity taxes, reduce grid fees, abolish the tax on gas prices, and introduce an industrial electricity tariff.

The new government plans to cut 1 billion euros in public funds this year and reduce administrative costs by 10% by 2029; there will be an 8% cut in the number of public employees, excluding security forces. Subsidies and support programs are also being comprehensively reviewed.

Reductions in energy prices and public-private investment funds are also among the issues agreed upon. At the heart of the plan is the promise that Germany can regain its competitiveness as global winds intensify.

“First and foremost, we will strengthen the price competitiveness of the German economy,” Merz said in a statement in Berlin.

However, the coalition agreement also signals an increase in the minimum wage to 15 euros per hour, a move that capital groups have opposed as a “wrong step.”

The SPD also managed to secure seven ministries in the latest cabinet reshuffle, despite a record low election result of 16%. This likely reflects Merz’s lack of leverage in the negotiations, as his party has no other realistic coalition partner.

Bavaria’s CSU state premier, Markus Söder, emphasized that the coalition was not exactly a “love marriage” and that “the love will end.”

Merz, on the other hand, said that the negotiations had created a “good personal relationship of trust” with the SPD.

On the other hand, the final agreement needs to be approved by a majority of the SPD’s approximately 350,000 members in a vote ending on April 29 and by members at the Christian Democrats’ party conference on April 28.

The approval of party members remains a potential obstacle. The determination of the ministers to be included in the cabinet will also likely take place after these decisions.

After the agreement is approved, Merz could be elected chancellor in early May. “So far, we have only tentatively discussed the schedule,” Merz said, avoiding confirming a specific timeline, but the most likely date seems to be May 6 or 7.