Germany’s Merz unveils coalition deal with SPD after weeks of drift

German conservatives under Friedrich Merz have clinched a coalition deal with the centre-left Social Democrats (SPD), aiming to revive growth in Europe’s largest economy just as a global trade war threatens recession.

The deal on Wednesday caps weeks of haggling between Chancellor-in-waiting Merz and the SPD after he topped elections in February, but fell well short of a majority, with the far-right Alternative for Germany surging into second place.

Pressure to reach a deal had taken on new urgency as the government will take charge at a time of global turbulence in an escalating trade conflict sparked by US President Donald Trump’s sweeping import tariffs.

During a news conference with his coalition partners, Merz – who leads the Christian Democratic Union (CDU) – directed a message to the White House in English.

“The key message to Donald Trump is Germany is back on track,” he said, promising to ramp up defence spending and boost the competitiveness of the economy.

The 69-year-old said the coalition pact provided a “strong and clear signal” both to its own citizens and other European countries, adding, “Germany is getting a government that is capable of action and strong.”

The deal stressed the importance of Germany’s relations with the United States, its largest trading partner, and aims for a free trade deal in the medium term.

But Merz also emphasised that the European Union needed a common response to the escalating global tariff war that has put the US and China, in particular, at loggerheads.

“At the same time, economic uncertainty is increasing enormously. This week in particular, decisions by the American government have triggered new turmoil,” Merz said.

Outlining a number of policies, the coalition agreed to cut taxes for middle and lower incomes, to reduce corporate tax, lower energy prices, support the electric car industry and scrap a disputed supply chain law.

It also plans a commission on further reforming Germany’s constitutionally enshrined spending limits known as the “debt brake”, long seen by critics as hobbling economic growth.

With the AfD breathing down its neck, the coalition signalled a tougher stance on migration, planning to turn away asylum seekers at Germany’s borders and scrap fast-tracked naturalisation, among other measures.

The coalition also announced a voluntary military service and the creation of a national security council, as well as moves to speed up defence procurement and backing Ukraine’s bid to join the NATO alliance.

Merz, who had previously called Trump’s US an unreliable ally, has already pledged to build up defence spending as Europe faces a hostile Russia, and to support businesses struggling with high costs and weak demand.

The CDU is set to take charge of economy and foreign ministries, as well as the chancellery, while the SPD would run finance and defence, according to a document seen by the Reuters news agency.

That puts SPD leader Lars Klingbeil in the frame to become finance minister and probably leaves popular Defence Minister Boris Pistorius in place.

Before Merz can take the helm, the coalition deal needs approval in a ballot of the Social Democrats’ membership and by a convention on April 28 of Merz’s Christian Democratic Union party.

Once those hurdles are cleared, the lower house of parliament – in which the allies have 328 of the 630 seats – can elect him as chancellor.

The coalition is the only possible two-party majority that excludes the AfD, whose support has surged on a nativist, anti-migration agenda.

In a blow to Merz, a survey by Ipsos released on Wednesday showed the AfD topping the polls for the first time with 25 percent, overtaking Merz’s conservatives who slipped to 24 percent.