- Coalition ends 7-month political gridlock following early elections
- Merz's CDU and Scholz's SPD secure 328-seat parliamentary majority
- Defense spending reforms mark policy reversal for conservatives
- New infrastructure fund aims to revive stagnant German economy
- Far-right gains highlighted as pressure point during negotiations
Germany's political landscape stabilized on Wednesday as the Christian Democratic Union (CDU) and Social Democratic Party (SPD) concluded marathon negotiations to form a coalition government. The agreement comes seven months after snap elections triggered by the collapse of Chancellor Olaf Scholz's administration, during which support for far-right parties grew by 14% according to parliamentary records.
Friedrich Merz, the CDU leader poised to become Germany's next chancellor, emphasized the coalition's focus on economic revitalization during a press briefing. Our €132 billion infrastructure modernization plan will create 85,000 skilled jobs by 2026,Merz stated, referencing the coalition's signature policy initiative. This marks a significant shift for the fiscally conservative CDU, which had opposed similar spending measures during the 2021 electoral cycle.
The defense spending provisions proved particularly contentious during negotiations. Analysts note the approved €58 billion military modernization package – 32% larger than 2023 allocations – responds to NATO pressure and regional security concerns. Munich-based security expert Dr. Anika Weber observed: This strategic pivot mirrors France's 2022 defense reforms, suggesting coordinated EU preparedness efforts.
Political risks remain as both parties prepare for membership ratification votes. The SPD's 425,000-strong base could reject the deal over pension reform concessions, while CDU traditionalists oppose relaxed debt rules. However, financial markets reacted positively, with the DAX index climbing 1.8% following the announcement.
Industry stakeholders highlighted potential impacts: Siemens Energy CEO Christian Bruch praised infrastructure commitments, while IG Metall union leaders warned about manufacturing job protections. The coalition's green energy transition roadmap – requiring 68% renewable electricity by 2030 – could face challenges given Germany's recent 4.3% GDP contraction in Q1 2024.
As Europe's largest economy navigates this political transition, the coalition's success may influence EU fiscal policy debates. Brussels policymakers are closely monitoring Germany's debt brake modifications, which could enable similar flexibility for Italy's €220 billion recovery fund implementation.