Incoming German Chancellor Merz vows reforms and investments as parties sign coalition agreement

Incoming German Chancellor Friedrich Merz on Monday vowed reforms and new investments as the country’s centrist parties signed a coalition agreement and announced additional members of the cabinet.

“Tomorrow you will get ... a government that is determined to move Germany forwards with reforms and investment,” Merz said Monday ahead of the agreement being signed according to a CNBC translation.

Merz is part of the center-right Christian Democratic Union which, alongside its sister party the Christian Social Union, secured the largest shares of votes in February’s election. The center-left Social Democratic Party is also part of the new ruling coalition, having placed third in the election.

After weeks of negotiations the party leaders first presented their coalition agreement in early April before securing sign-offs from within their parties. On Monday the over 140-page deal, titled “Responsibility for Germany” was then ceremoniously signed.

The deal covers the incoming governments plans and goals for the country, including changes to tax laws for individuals as well as businesses, migration policy and a new model for voluntary military service.

Changes to the country's long-standing debt rules

The CDU-CSU/SPD coalition had already realized a major shift in Germany’s fiscal policy before officially taking office. The package includes changes to the country’s long-standing debt rules that will allow for higher defense spending, as well as a 500-billion-euro ($567.5 billion) infrastructure and climate fund.

Additional designated ministers were also announced Monday, completing the incoming cabinet. Key roles include Lars Klingbeil as finance minister, Katherina Reiche as economy minister, Johann Wadephul as foreign minister and Boris Pistorius staying on as defense minister.

Klingbeil will also become vice-chancellor in the new government. He and Merz will be the key figures and decision makers, Holger Schmieding, chief economist at Berenberg, said in a note Monday.

“In the new government, Merz and the undisputed leader of the SPD, new finance minister Lars Klingbeil, will be calling the shots. What these two leaders agree will likely get done, with some occasional sniping from Bavarian CSU boss Markus Söder,” he said.

“Both Merz and Klingbeil know that their government needs to succeed to stem the rise of the right-wing AfD so that the AfD does not get close to power at the next election in early 2029.”

The far-right AfD, or Alternative fuer Deutschland, had won the second largest number of votes in this year’s election.