German government takes shape as SPD backs coalition deal for Merz to take over

Business figures set to feature prominently in new cabinet to tackle economic decline and US tariffs

Germany's chancellor-in-waiting and leader of the Christian Democratic Union party, Friedrich Merz, left, and co-leader of the Social Democratic Party, Lars Klingbeil. Reuters

Friedrich Merz has finalised a coalition agreement with the Social Democratic Party (SPD) that paves the way for him to be confirmed as Germany’s new chancellor next week.

Mr Merz’s cabinet has already begun to take shape with the appointment of 10 ministers from his conservative Christian Democratic Union and their Bavarian sister party the Christian Social Union in Bavaria (CSU), who together emerged as the largest bloc in February's general election.

In a ballot, SPD party members backed entering a coalition, with the party providing seven ministers.

SPD co-leader Lars Klingbeil looks set to become Germany's next vice chancellor and finance minister.

Mr Klingbeil, who once played in a punk band, is acclaimed by supporters for his charismatic personality and strong communication skills. He is seen as a rising star within the SPD and a potential future chancellor.

Current SPD Defence Minister Boris Pistorius is also expected to remain in his role and, with Mr Klingbeil, will oversee a massive expansion in spending on the military.

Mr Merz will lead a government facing the challenge of Germany's industrial decline and coinciding with President Donald Trump's readiness to range a trade war against the EU.

His party is putting forward business figures to take the helm of economy-focused ministries. Katherina Reiche has been the chief executive of energy service and infrastructure provider EON SE’s Westenergie AG unit since 2020 and will assume for the economy and energy portfolio.

The chief executive of consumer electronics retailer Ceconomy AG, Karsten Wildberger, will head a new department for digitalisation and modernisation of the state.

Other CDU cabinet appointments include Johann Wadephul for foreign affairs, Thorsten Frei as chancellery minister and Patrick Schnieder for transport.

The overall “grand coalition” with the SPD is the fifth such alliance since the Second World War − including collaborations under former conservative chancellor Angela Merkel.

“The broad approval of our coalition agreement shows that the political centre is capable of taking action and assuming responsibility,” said Mr Merz. “This clears the way for a strong government that will finally solve our country's problems.”

Announcing the SPD membership's backing of a coalition, general secretary Matthias Miersch said the party “is ready to take on responsibility in the next government”.

“It’s about setting the right path to take Germany forward and above all about investing in the future of this country.”

SPD secretary general Matthias Miersch said the party was ready to take on responsibility of government. AFP

Mr Merz is due to be voted in by Bundestag lawmakers next Tuesday, after which he’ll take his oath of office along with the members of his cabinet.

Boosting Germany’s sluggish economy is a priority for the incoming chancellor. The country’s gross domestic product has shrunk the past two years and is in danger of doing so again this year.

While he was prominent in opposition politics at the turn of the century, former corporate lawyer Mr Merz with no experience in government posts. His approval rating is only at around 36 per cent and support for the parties in the next government has slumped in opinion polls, with combined support at about 40 per cent.

The far-right Alternative for Germany has become the strongest force in some polls, increasing the pressure on Mr Merz to act fast.

“How quickly the new government draws up the budget, and whether it will be passed before the summer break, will be decisive,” said Marion Muhlberger, economist and political analyst at Deutsche Bank Research.

Germany's parliament approved plans in March for a huge spending surge which also includes a €500 billion ($568 billion) special fund for infrastructure, casting aside decades of fiscal conservatism in hopes of reviving economic growth.

The next coalition also aim to raise the minimum wage to €15 per hour, keep pensions level at 48 per cent of the current average wage and extend a cap on rents, according to the coalition contract.