Germany’s conservatives, led by chancellor-in-waiting Friedrich Merz, are close to finalizing a coalition deal with the center-left Social Democrats (SPD) on Tuesday. The potential government aims to boost growth in Europe’s largest economy, despite global challenges.
Two sources told Reuters that decisive talks could take place on Tuesday and a deal could be reached on Wednesday, echoing a Bild newspaper report saying there was determination to reach a deal on Tuesday.
Merz’s Christian Democrats (CDU) will head the new administration alongside their Bavarian CSU sister party, with the SPD as junior partner.
The government will take charge at a time of global turbulence in an escalating trade war sparked by U.S. President Donald Trump’s sweeping import tariffs, which could stoke inflation and have raised fears of a global recession.
Merz, who called Trump’s U.S. an unreliable ally after winning the election in February, has also vowed to build up defence spending as Europe faces a hostile Russia, and to support businesses struggling with high costs and weak demand.
German economic institutes have cut back their forecast for this year’s growth to 0.1% from the 0.8% they had expected in September, sources told Reuters on Tuesday.
Blow To The Economy
Germany has endured two years of contraction already and the tariffs are a sharp blow to its highly export-focused economy.
Merz’s coalition would be the only possible two-party majority that excludes the far-right Alternative for Germany, which all other parties have pledged to shun, even though it came second in the election.
Merz this week told Reuters that Trump’s tariffs underscored the need for Germany to rebuild its competitiveness, after a bruising period in which the AfD drew level with his conservatives in an opinion poll for the first time.
Soon after winning the election, Merz pushed through a constitutional amendment that would allow him to unleash a borrowing bonanza to fund a big boost in defence and infrastructure spending.
But the move, while providing his new government with a massive windfall, received criticism from some of his own supporters for pivoting away from a promise of fiscal rigour.
In a new poll by the Forsa institute, 60% of respondents said Merz was not fit to be chancellor, including 28% of CDU/CSU voters.
(With inputs from Reuters)
