German conservative leader Friedrich Merz has struck a coalition deal with the centre-left Social Democrats (SPD), forming a new government aimed at lifting Europe’s largest economy out of stagnation just as U.S. tariffs risk plunging global trade into crisis.
Merz, who is set to become chancellor after February’s election win, fell short of a majority, with the far-right AfD surging into second place. His deal with the SPD ends weeks of talks and arrives at a moment of global volatility.
“The key message to Donald Trump is: Germany is back on track,” Merz said in English during a joint press conference, promising to raise defence spending and boost Germany’s economic competitiveness.
The coalition agreement includes tax cuts for low and middle-income earners, corporate tax relief, lower energy prices, support for electric vehicles, and the rollback of a controversial supply chain law. It also pledges to reform the “debt brake” fiscal limits that many economists see as restricting growth.
Merz credited European unity with influencing Trump’s sudden decision to pause new tariffs for 90 days. “This example shows you: unity helps,” he told RTL, calling for a 0% transatlantic tariff deal to end the crisis.
Defence and migration also feature prominently in the pact. The coalition will introduce voluntary military service, set up a national security council, speed up arms procurement, and support Ukraine’s bid to join NATO.
On migration, the tone shifts sharply from the Merkel era, with plans to turn away asylum seekers at the border and scrap fast-track citizenship. With the AfD gaining support, Merz is under pressure to reclaim the narrative on migration and security.
The CDU will control the economy, foreign affairs, and the chancellery, while the SPD will hold finance and defence. That likely puts SPD leader Lars Klingbeil at the helm of the finance ministry and leaves Defence Minister Boris Pistorius in place.
But Merz’s challenge is growing. A new Ipsos poll shows the AfD leading nationally with 25%, ahead of Merz’s conservatives at 24%. Critics also point to his borrowing push to fund spending, saying it undermines Germany’s tradition of fiscal discipline.
Economists warn time is short. “The agreed infrastructure investments need to be launched quickly,” said Deutsche Bank’s Robin Winkler. “Germany must act now to avoid a third year of recession.”
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President Donald Trump said on Tuesday he believes Russian President Vladimir Putin wants to end the war in Ukraine, even as missile strikes continue across the country.
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Russian President Vladimir Putin announced Tuesday that Russia and Belarus are planning to establish a joint aviation factory focused on producing drones and other aircraft. The announcement came during a meeting with Belarusian President Alexander Lukashenko in the Russian city of Volgograd.
The Trump administration is reviewing possible changes to a Biden-era rule that restricts global access to advanced AI chips, including potentially scrapping the current system that divides countries into three tiers, according to three sources familiar with the matter.
China has renewed its call for a permanent ceasefire in Gaza and demanded that Israel cease its military operations in Lebanon and Syria, warning of escalating instability across the Middle East.
President Donald Trump said on Tuesday he believes Russian President Vladimir Putin wants to end the war in Ukraine, even as missile strikes continue across the country.
President Vladimir Putin has signed a decree renaming Volgograd International Airport as Stalingrad, invoking Soviet wartime memory as Russia continues its war in Ukraine.
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