Merz to Meet German Coalition Partners as Reform Agenda Falters

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(Bloomberg) — German Chancellor Friedrich Merz is seeking to reverse his beleaguered government’s fortunes by getting an ambitious reform agenda back on track amid plummeting public support. 

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Merz’s Christian Democratic-led conservatives and the Social Democrats will meet on Tuesday to try to find consensus on a plan to overhaul Germany’s tax and pension system. It takes place five weeks after another crisis meeting 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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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. He’s promised to seize momentum with a sweeping set of policies that includes repairing the finances of Germany’s vast healthcare system, delivering income-tax cuts to citizens and putting the country’s state pension scheme on firm footing for the decades to come. 

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But those agenda items were supposed to be on the table at the April 11-12 weekend-long crisis meeting at Villa Borsig, a century-old mansion on the edge of the German capital. Along with Vice Chancellor and SPD co-leader Lars Klingbeil, Merz had been preparing to assemble a major package to set the coalition’s agenda for this year.

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Instead, the lakeside gathering was badly prepared and lacked structure, with Merz’s conservatives unwilling to offer concessions, according to the people, who spoke on condition of anonymity as talks take place behind closed doors. For his part, the chancellor has repeatedly accused the SPD of being resistant to compromise. 

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Hours of laborious and heated debate resulted in a thin set of measures to address soaring costs at the pump: a fuel-tax cut and an optional employee bonus widely panned by economists and industry representatives in recent weeks as inadequate. 

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‘Off the Table’

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The coalition took another hit on Friday when the bonus package, which would amount to €1,000 ($1,178) per employee, was blocked by Germany’s upper house of parliament, where representatives of the country’s 16 states bridled at the cost. They included regions governed by Merz’s conservative allies, a painful setback for the chancellor. 

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Bavarian state premier Markus Söder, who leads the conservative Christian Social Union, had backed the bonus at Villa Borsig, where one participant said that he often veered from the agenda and questioned previously agreed compromises. Weeks later, he helped halt the bonus in the upper chamber, the Bundesrat. 

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It was initially a “good idea,” Söder told broadcaster ARD on Sunday, but a costly one that met with stiff industry resistance. “I think it’s off the table,” he said. A spokesperson for the Bavarian premier didn’t immediately respond to a request for comment.