The deal clears the way for Merz, the leader of the center-right Christian Democratic Union (CDU), to be sworn in as Germany’s next chancellor within weeks.
The coalition deal comes at a moment of profound uncertainty for Germany and Europe after Trump last week slapped 20 percent tariffs on the EU, a move that could hit Germany’s export-oriented economy particularly hard. It also comes as Merz vows to strengthen his country’s military in response to the threat Putin poses to Europe and the weakening of the transatlantic alliance Germany had long depended on for its defense.
These twin shocks — to the economy and European security — intensified pressure on Merz and his SPD counterparts to rapidly form a stable government capable of responding. Germany has been led by a weak minority government under outgoing Chancellor Olaf Scholz since his fractious three-party coalition collapsed in November over disagreements on spending.
Despite Merz’s pledges to provide strong German leadership within Europe, he emerges from coalition negotiations as a damaged party leader. His landmark agreement with the SPD and the Greens to unleash hundreds of billions of euros in debt-fueled spending for defense and infrastructure was largely celebrated abroad, but fomented dissatisfaction within parts of his conservative base at home, opening him to attacks from the far-right Alternative for Germany (AfD), which is set to become the largest opposition party in the country’s parliament. Merz’s approval ratings have plummeted since his conservatives’ election victory.
The final phase of negotiations between the conservatives and SPD brought several key sticking points to the surface, with the SPD pushing for tax hikes on top earners and the conservatives opposing new tax rises.
Migration also emerged as one of the most politically charged issues late in the talks. Facing pressure from his right flank due to the AfD’s strong election result, Merz’s conservatives pushed for rejections of asylum-seekers at Germany’s borders. The SPD pushed back, arguing such a move would alienate Germany’s neighbors at a time when the country needed EU solidarity to fight back against Trump’s tariffs.
A joint press conference with party leaders is expected for Wednesday in Berlin, where the coalition agreement is expected to be formally presented. The coalition deal still needs to be voted on by members of the SPD. The parties in Merz’s conservative bloc do not require full membership votes for approval.