Germany’s conservatives and the centre-left SPD are nearing a coalition deal to tackle economic challenges, including the impact of U.S. trade tariffs.
The deal aims to revive growth in Europe’s largest economy, which has been under significant pressure due to global economic turbulence, particularly the escalating trade war sparked by U.S. President Donald Trump’s sweeping import tariffs.
According to two sources close to the discussions, decisive talks between the Christian Democratic Union (CDU), Merz’s party, and the SPD are expected to take place today, with a potential deal to be announced as early as Wednesday.
The deal would see the CDU and its Bavarian sister party, the Christian Social Union (CSU), heading the new administration, with the SPD serving as the junior partner.
The urgency of the negotiations has been fueled by the ongoing global economic uncertainty, particularly the impact of the U.S. tariffs on Germany’s export-heavy economy.
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The tariffs have added to inflationary pressures and raised fears of a global recession, with many businesses struggling to cope with high costs and weak demand.
In light of these challenges, Merz, who has criticized Trump’s administration for its unpredictable policies, has emphasized the need for Germany to rebuild its competitiveness.
He has also called for increased defense spending as Europe faces growing security threats, particularly from Russia. Merz’s government will need to act quickly to address these issues, as Germany’s economic institutes have sharply reduced their growth forecast for the year to just 0.1%, down from 0.8% in September.
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Despite Germany’s current economic struggles, including two consecutive years of contraction, Merz’s coalition is set to be the only viable two-party majority government in the country, excluding the far-right Alternative for Germany (AfD). All other major parties have vowed to shun the AfD, despite it finishing second in the recent election.
Following his election victory in February, Merz took swift action by pushing through a constitutional amendment that would allow for a significant increase in defense and infrastructure spending.
This move, which would provide his government with a massive boost in funding, has been met with criticism from some of his supporters, particularly those who had backed his campaign promise of fiscal responsibility.
In the wake of the tariffs, Merz has expressed a strong desire to rebuild Germany’s economic foundations, particularly its competitiveness in the global market. His new government will likely prioritize boosting industrial output, supporting businesses hit hardest by the tariffs, and fostering new trade relations with key global partners.
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However, Merz’s leadership has not been without controversy. A recent poll by the Forsa Institute found that 60% of respondents believed Merz was unfit to be chancellor, including 28% of voters from his own CDU/CSU party. This survey suggests that despite his decisive victory in the election, Merz faces significant opposition from within his party, especially as he navigates a challenging economic landscape.
As Germany prepares for its new coalition government, all eyes will be on Merz and his team as they seek to rebuild the country’s economic stability in the face of global uncertainties, including the lasting impact of Trump’s trade tariffs.
