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German ruling coalition agrees on major reform package

admin — Thu, 02 Jul 2026 17:47:00 +0000

German Chancellor and leader of the Christian Democratic Union (CDU) Friedrich Merz, Finance Minister and co-leader of the Social Democratic Party (SPD) Lars Klingbeil, Labour and Social Affairs Minister and SPD co-leader Baerbel Bas, and Christian Social Union (CSU) leader and Bavarian State Premier Markus Soeder attend a press conference following a government coalition board meeting at the Chancellery, in Berlin, Germany, July 2, 2026.
| Photo Credit: Reuters

Germany’s ruling coalition has agreed on sweeping tax, labour and pension reforms, Chancellor Friedrich Merz said Thursday, a breakthrough aimed at reviving the struggling economy and countering the rise of the far right.

“We are working to increase the flexibility of our businesses,” Mr. Merz told a Berlin press conference after lengthy talks between his centre-right CDU/CSU alliance and their coalition partners the centre-left SPD.

“We are working to cut red tape. We are working to protect our welfare state, and we are working to ease the burden on employees and companies by lowering taxes,” said Mr. Merz, who had promised a “great leap forward” for German growth.

The package includes income tax cuts worth €10 billion ($11.4bn), to be financed by higher taxes on those earning more than €250,000 a year. And changes to the pension system will eventually see the retirement age rise past 67.

“The highest earners in this country will take on a larger share” of the tax burden, said Finance Minister and Vice Chancellor Lars Klingbeil of the SPD. “That is fair, so that our country can move forward.”

The tax relief would mean an average family is about €600 better off per year, the parties said.

The coalition also agreed to reduce corporate reporting obligations that companies see as burdensome, and to scrap the right of employees to get a sick note by telephone with the aim of reducing worker absentee days in Germany.

It will also be possible to employ people on temporary contracts for up to four years.

Business organisations welcomed the plans, but trade union IG Metall said the labour reforms were “an attack on workers’ rights”.

‘Under pressure’

The coalition parties — in power since May last year in Europe’s biggest economy — had been struggling for months to agree on a series of thorny issues.

The government is also keen to show it can get to grips with the country’s problems and to diminish the appeal of the far-right Alternative for Germany (AfD), which has been topping national opinion polls for months.

Key regional elections will be held in September in formerly communist eastern Germany, which could produce the first-ever AfD-led state government. That would be unprecedented in post-war Germany and would underline Mr. Merz’s dire approval ratings.

“We are doing everything we can to overcome our country’s structural weakness when it comes to economic growth,” Mr. Merz said, admitting that “we are under pressure from many sides”.

Germany’s export-led industry was long the engine of its economic success but has been hit hard by rising energy and labour costs. Tough Chinese competition and U.S. President Donald Trump’s erratic tariff blitz have only heightened the pressure.

In a part of the package which was seen as aimed at China, the coalition said the government would press for tougher action at the EU level against “unfair competition” as well as stricter rules on foreign investment in “strategic sectors and critical infrastructure”.

Marion Muehlberger, senior economist at Deutsche Bank, said Thursday’s (July 2, 2026) announcement represented “one of (Germany’s) biggest reform packages in decades” and showed the government’s “ability to agree on important structural reforms”.

She said that the package “should bode well for sentiment and dovetails with our forecast that growth will pick up in the second half of the year”.

Holger Schmieding from Berenberg cautioned that “none of the many reforms… will be ground-breaking on its own”.

“But on top of the major pension reform proposal which the government had already endorsed ten days ago, the reform deal can make a real difference,” he said. “If implemented, Germany can become a better place to invest and create jobs again.”

Marcel Fratzscher, president of the DIW institute, offered a more downbeat assessment, telling the Rheinische Post daily that the reforms did not represent “a great success but rather a symbolic package”.

Published – July 02, 2026 11:17 pm IST

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Germany’s Merz makes first visit to Israel as chancellor

admin — Sat, 06 Dec 2025 16:44:00 +0000

German Chancellor Friedrich Merz heads to Israel on Saturday (December 6, 2025) for his first visit since taking office, aiming to reaffirm traditionally solid ties that were shaken during the Gaza war.

Mr. Merz, after stopping in Jordan for talks with King Abdullah II, is set to fly on to Israel in the evening before meeting Prime Minister Benjamin Netanyahu in Jerusalem on Sunday.

The German leader is also expected to visit the Yad Vashem Holocaust memorial.

Given the dark legacy of Nazi Germany’s industrial-scale murder of Jews, German leaders have long seen unflinching support for Israel as a bedrock of the country’s foreign policy.

In a speech in September celebrating the reopening of Munich’s synagogue, which was severely damaged by the Nazis, Mr. Merz visibly struggled to hold back tears, his voice breaking.

But Israeli-German ties were shaken during the Gaza war set off by the October 7, 2023 Hamas attack on Israel, the deadliest in the country’s history.

Mr. Merz, who took power in May this year, has repeatedly criticised Israel’s relentless military campaign, which has killed tens of thousands of Palestinians.

In August, he also moved to restrict sales of weapons for use in Gaza.

Since a fragile U.S.-backed ceasefire and hostage deal ended full-scale fighting, Germany has lifted those export restrictions.

Despite the ceasefire deal, more than 350 Palestinians have been killed in Gaza, according to local health authorities, as well as three Israeli soldiers.

The UN also warns that Israel is still not allowing enough aid into Gaza.

Before leaving Berlin on Saturday morning, Mr. Merz spoke with Palestinian Authority (PA) President Mahmud Abbas.

A spokesman said Merz underscored German support for a two-state solution but urged Abbas to push through “urgently necessary reforms” of the PA in order to play a “constructive role” in the postwar order.

‘Signal of support’

After the recent strains, Israel expects a “signal of continued support” from Mr. Merz, said Michael Rimmel, head of the Jerusalem office of the Konrad Adenauer Foundation, affiliated with Mr. Merz’s centre-right Christian Democrats (CDU).

German-Israeli relations have been strained over the past two years but remain “better than many people think”, Rimmel told AFP.

But he said Berlin has little discernible influence on Mr. Netanyahu’s government, which has pushed on with West Bank settlements despite protests from Berlin and elsewhere, and dismissed calls for a two-state solution.

“Certainly, President Trump and the Americans have greater influence,” said Rimmel, noting that the US president was able to pressure Mr. Netanyahu into the Gaza ceasefire.

Gil Shohat, head of the Tel Aviv office of the Rosa Luxemburg Foundation, which is affiliated with Germany’s far-left Die Linke party, sharply criticised Mr. Merz for making the trip.

Mr. Shohat argued that Mr. Merz is effectively offering political support to Mr. Netanyahu and Israel’s hard-right government.

“Netanyahu is a wanted war criminal and is under suspicion of corruption,” said Mr. Shohat. “Going there now and legitimising him is a fatal sign of normalisation in a situation that must not be normalised.”

Defence deals

Although Mr. Merz’s public criticism of Israel was unusual for a German leader, it was measured by international standards.

Mr. Merz recently offered Israel full-throated support as European broadcasters weighed whether to exclude the country from the annual Eurovision Song Contest, calling such a possibility “scandalous”.

The decision to include Israel in the upcoming Eurovision event, reached on Thursday, was warmly welcomed in Berlin even as it prompted boycotts from Spain, the Netherlands and elsewhere.

Still, despite the close ties, German officials have said there are currently no plans to invite Mr. Netanyahu — who faces an international arrest warrant for war crimes in Gaza from the International Criminal Court (ICC) —to Berlin.

Mr. Merz, not long after his party’s election victory in February, vowed to invite the Israeli leader and told him in a phone call that he would not be arrested.

Any tensions in German-Israeli relations have also not disrupted key military ties. Germany last week put into operation the first phase of the Israeli-made Arrow missile defence shield.

The $4.5 billion deal was reportedly the largest arms export agreement in Israeli history, and Berlin has also turned to Israeli firms for help in drone defence.

The German-Israeli Society — which said Mr. Merz’s visit must aim to “repair the damaged German-Israeli relations” — also pointed out that defence ties “have long since reversed”.

“Israel is no longer dependent on German technology, but rather German defence depends on Israeli technology.”

Published – December 06, 2025 10:14 pm IST

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