A Bold New Germany? The Policies Just Agreed in the Coalition Talks
Germany’s next government is poised to implement some of the most controversial border policies in recent years. Friedrich Merz, the leader of the Christian Democratic Union (CDU) and likely next chancellor, announced that asylum-seekers could be turned away at the border even if they apply for asylum—a shift that the Social Democrats (SPD) had previously criticized as breaching EU law. As a compromise, these rejections will occur “in coordination with European neighbors,” though specifics remain unclear.
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Additionally, border controls will be “massively extended,” a move that challenges the Schengen agreement’s free movement principles. However, the coalition partners have agreed to maintain Germany’s reformed dual citizenship laws, allowing naturalized citizens to hold multiple nationalities. While this was a key CDU campaign issue, they ultimately conceded on rolling back these rights.
Economic Revival Plans
Germany’s economy has been in a downturn for the past two years, and the coalition aims to push growth beyond 1%. The coalition agreement outlines energy price caps for businesses, streamlined bureaucracy, and state-backed recruitment of skilled workers from abroad. In a move likely to anger climate advocates, the government plans to “avoid” penalties on automakers for failing to meet European CO₂ emission targets. However, the agreement does not address the controversial 2035 petrol car ban.
Business-friendly tax reforms are a central pillar of the economic plan. The coalition intends to lower the tax burden for middle-class earners and businesses, making Germany more competitive. Additionally, Germany will seek to revive free-trade negotiations with the U.S. while maintaining support for the EU-Latin America Mercosur deal.
Labour Market Reforms and Minimum Wage Increase
One of the coalition’s more progressive policies includes a commitment to raising the minimum wage by 17%, from €12.82 to €15 per hour by next year—a major win for the SPD. However, in exchange, the CDU secured a significant overhaul of Germany’s unemployment benefits system. The agreement states that benefits will be “completely withdrawn” from individuals who refuse “reasonable work opportunities,” echoing CDU’s campaign pledge to curb long-term unemployment support.
The parties also propose new incentives for retirees who continue working, allowing them to earn up to €2,000 per month tax-free. Meanwhile, bonuses for overtime work beyond full-time hours will become tax-free, making overtime work more attractive for employees.
The Role of Green Policies
The coalition’s preliminary agreement has drawn criticism from the Green Party, which is necessary to secure the two-thirds parliamentary majority needed for funding measures. The Greens argue that the proposal “lacks ambition,” particularly in climate policy. Felix Banaszak, co-chair of the Greens, stated, “Funding for climate protection plays no role at all.”
Despite these criticisms, the paper confirms Germany’s continued support for Ukraine, although it lacks detailed commitments regarding military or financial assistance.
Public and Expert Reactions
Economists have expressed concern about the fiscal implications of the coalition’s proposed debt-financed investment package. Friedrich Heinemann of the Leibniz Centre for European Economic Research warned that this marks “the end of the debt brake,” potentially leading to wasteful subsidies. Similarly, Stefan Kooths of the Kiel Institute criticized the lack of a solid consolidation strategy.
Business groups, however, welcomed the agreement’s tax cuts and reduced bureaucracy. Jörg Dittrich, President of the German Confederation of Skilled Trades, emphasized the importance of swiftly establishing a “government capable of taking action.”
What’s Next?
The coalition negotiations will formally begin after each party’s top committee reviews the exploratory paper. While the CDU aims to finalize the coalition deal by Easter, the SPD has not committed to a deadline.
With a politically divided parliament and resistance from the Greens, these negotiations could prove challenging. The policies outlined so far signal a shift toward stricter immigration controls, pro-business tax policies, and a recalibrated approach to social welfare—though final agreements remain to be seen.
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