Merz Coalition to Press Reforms as Meeting Yields Few Details

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(Bloomberg) — German Chancellor Friedrich Merz’s coalition resolved to press ahead with reform measures in the coming weeks after a six-hour meeting meant to regain traction with the public produced few concrete agreements. 

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Merz’s Christian Democratic-led bloc and the Social Democrats set out a working process to coordinate and implement a legislative agenda, according to a government official familiar with the agreement. 

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No timeline was given, though the partners committed to finalizing the 2027 budget without reserve funding and holding carbon prices steady, the official said early Wednesday on condition of anonymity in line with government protocol. 

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Coalition leaders met late Tuesday in Berlin in an attempt to address widening rifts over Germany’s income tax and state pension systems, while weighing measures to alleviate higher fuel costs on households and businesses. It was unclear what if any progress was made on those fronts. 

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A year since taking power, Merz’s popularity has sunk to a historic low as he struggles to assert authority over his coalition and within his party. On Tuesday, the chancellor was met with shouts and jeers at a labor union conference as he outlined cost cuts to the healthcare system and an overhaul in pensions. “Everybody has to give something,” he said, triggering a chorus of boos. 

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The meeting in the Federal Chancellery took place five weeks after another session ended in acrimony so grave that coalition members are asking whether the future of the government may be at risk, according to people familiar with the matter. 

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Merz’s CDU-led bloc had the backing of 22% of the public, trailing the far-right Alternative for Germany by five percentage points, according to a Forsa poll published Tuesday. The SPD remained at 12%, putting the current coalition well short of a majority if an election were held. 

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Merz and his vice chancellor, Social Democratic co-leader Lars Klingbeil, have repeatedly promised to push through a set of policies that will shore up the country’s financing and end an economic malaise. They include repairing the finances of Germany’s vast healthcare system, delivering income-tax cuts to broad majority of workers and putting the country’s state pension scheme on firm footing. 

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At stake is Merz’s promise to revive growth in Europe’s biggest economy, which is facing headwinds from the US-led war in Iran and an extended malaise. The government last month cut its growth forecast for this year in half to 0.5% amid a spike in energy prices for industry and households. 

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