The coalition government holds a mixed bag for Germany

The EU’s largest economy is on its way to a more stable government, with the election of Friedrich Merz as chancellor and the swearing in of cabinet members currently set for 7 May. But the coalition agreement is a mixed bag, without the sweeping new beginnings that many had hoped for. On the positive side, the coalition agreement focuses on pro-business reforms, including a proposed 30% super depreciation allowance for three years, lower corporate taxes from 2028 and the abolition of the Supply Chain Act. However, the plan lacks key structural reforms, particularly in the areas of pensions, work incentives and social security. With more than EUR50bn in estimated annual spending on the measures outlined in the treaty and only around EUR10bn in quantifiable identified savings, the program risks overpromising without a solid budgetary underpinning. The coalition's divergent views on the economy make real economic rebalancing and improved competitiveness unlikely without a shift in priorities.