Friedrich Merz. Photo: GLOBAL LOOK PRESS.
After weeks of intense negotiations, the conservative CDU/CSU bloc led by Friedrich Merz and the Social Democratic Party of Germany (SPD) announced that they had reached a coalition agreement to form a new government. The agreement must still be ratified by an internal vote of the SPD members. The new government will come at a time when the country’s economy is under pressure of a possible recession caused by global trade tensions, Reuters reports.
Friedrich Merz, who won February’s elections without an absolute majority, has reached a deal with the SPD after weeks of intense negotiations. His government aims to restore economic growth in Europe’s largest economy, which has suffered from two years of GDP contraction. German economic institutions have lowered their growth forecast for 2025 from 0.8% to just 0.1%.
At the same time, the Alternative for Germany (AfD) has become the main opposition force. A new Ipsos poll shows that the AfD has taken the lead for the first time with 25%, while the CDU/CSU’s rating has dropped to 24%. Among the ruling bloc’s voters, 28% believe that Merz is not suitable for the post of chancellor.
The government to be formed will support social security reform and income tax cuts starting in 2028. It also plans to increase spending on defence and infrastructure, in particular by temporarily expanding the public debt. This move has provoked a mixed reaction even among Merz’s supporters, as it departs from the traditional CDU/CSU policy of fiscal restraint.
Friedrich Merz, criticising US policy under Donald Trump, said that America is no longer a reliable ally. The government also announced its intention to support the free trade area between the European Union and the United States, while remaining open to new cross-border agreements.
Former SPD Finance Minister Jörg Kukis warned that a possible trade war with the US only increases the risk of a new recession. According to him, this is why the country needs a fast and stable government.
Despite the political breakthrough, Merz’s government coalition with the SPD remains the only alternative to avoid the influence of the far right in the executive branch. However, the AfD’s growing popularity puts the new cabinet in front of serious challenges, both domestically and internationally.
