Germany’s New Coalition Unveils Massive Economic Relief Plan Amid Industry Struggles

Germany’s incoming government, led by CDU leader Friedrich Merz, has presented an extensive coalition agreement that aims to revitalize the country’s stagnating economy. The conservative CDU/CSU and the center-left SPD have united around a strategy focused on tax relief, lower energy prices, and the reduction of bureaucracy in an effort to restore investor confidence and boost industrial productivity.

The backdrop is serious: the German economy has barely grown in three years. Production in energy-intensive sectors has been slashed, inflation fears are rising, and new tariffs from the United States under President Donald Trump have worsened business sentiment. With GDP growth projected at just 0.1% for the year, the new coalition is under pressure to deliver.

Central to their plan is “planning security,” a term Merz used in interviews to signal an end to the uncertainty that plagued the previous government. The new coalition promises policy clarity “beyond this legislative period.”

Billions in Tax Relief and Investment Incentives

One of the key components of the coalition’s agenda is corporate tax reform. The government plans to gradually reduce the corporate tax rate starting in 2028 and allow businesses to write off a larger share of their investment costs. The goal is to trigger an “investment boost” to energize German industry.

Energy policy is also central to the relief effort. The coalition has pledged to reduce the electricity tax to the minimum allowed under EU rules, by at least five cents per kilowatt-hour. Grid fees will be lowered for all consumers, and a cheaper industrial electricity price will be introduced for energy-intensive businesses. Additionally, the gas storage surcharge will be eliminated, potentially lowering natural gas prices.

The hospitality sector stands to benefit as well. The value-added tax (VAT) on food served in restaurants will be permanently reduced to seven percent. This measure alone could relieve the sector by approximately four billion euros, according to estimates from the Cologne-based Institute of the German Economy (IW).

If fully implemented, all proposed tax and energy measures could ease the financial burden on industry and consumers by more than €11 billion annually.

Automotive Industry and Electric Mobility

Germany’s powerful automotive sector is another priority. The coalition agreement includes special tax incentives for electric vehicle purchases, an exemption from vehicle tax for e-cars, and accelerated expansion of charging infrastructure. These efforts are supported by funds from the EU’s Climate Social Fund, intended to help low-income families afford electric mobility.

Yet, automotive associations remain skeptical. They argue that current proposals lack clarity and may not be strong enough to jumpstart stalled e-mobility growth. The coalition’s plan, they say, must go beyond symbolic gestures to produce real impact.

Bureaucracy Cuts and Digital Upgrades

One of the most frequent complaints from German businesses is bureaucratic overload. The coalition vows to reduce these administrative costs by 25%, translating into estimated savings of around €16 billion. This will involve abolishing Germany’s national supply chain law, which mandated extensive documentation, and replacing it with a more streamlined EU-aligned regulation.

Experts say digitalization and artificial intelligence are essential tools for reducing red tape. Although the coalition agreement makes several mentions of these technologies, economists are calling for faster implementation. Real progress, they argue, will require increased funding for research, education, and innovation.

According to the Ifo Institute, bureaucracy currently costs Germany around €150 billion annually. Reducing this figure even slightly would have immediate effects on productivity.

Trade Policy and Strategic Independence

Global trade tensions have intensified Germany’s need to diversify its international partnerships. The coalition plans to deepen economic relations with countries like India, Australia, and several Southeast Asian nations. African partnerships are also on the agenda.

While the agreement avoids detailed commentary on the current tariff dispute with the United States, it does express hope for a future transatlantic free trade deal. In the short term, the coalition wants to de-escalate tensions and lower import duties on both sides.

Observers are surprised by the absence of a detailed response to U.S. trade policies, given recent market volatility. However, the coalition clearly aims to reduce dependence on American policy decisions by broadening Germany’s global economic footprint.

Warnings from Economists on Missed Opportunities

While business leaders and economists welcome many of the measures, including the tax cuts and simplified reporting duties, several voices warn that the package may not go far enough.

Jens Südekum, professor of economics at the University of Düsseldorf, notes that tax reforms are too slow and limited in scope. Others, like Monika Schnitzer from the German Council of Economic Experts, criticize the lack of a pension reform, calling it a crucial element missing from the agreement.

Germany’s demographic challenge looms large. An aging population is shrinking the workforce and increasing pension and healthcare burdens. Economists insist that without structural reform, especially in social security, long-term stability is at risk.

Despite these critiques, coalition leaders like SPD co-chair Saskia Esken insist the agreement can spark the economic momentum Germany needs. With €500 billion in investment funds available over the next 12 years for climate protection and infrastructure, the government hopes to strike a balance between stimulating growth and maintaining fiscal discipline.