Chancellor Friedrich Merz presented a reform programme on Thursday he promised will “fix Germany” after a seven-year economic slump.
The 12-page “programme for recovery and jobs” was agreed after an eight-hour marathon that ended just before midnight.
Blinking in the Berlin sun after too little sleep, Merz insisted the reform plan – to cut income taxes and red tape and loosen hire-fire laws – was ambitious and effective even if it was not, he conceded, the promised “big bang” reform package.
“I sense a huge readiness to leave the stagnation behind us, our county can do more and will do more,” said Merz, head of the centre-right Christian Democratic Union (CDU).
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Thursday’s reform proposals build on a state pension overhaul and healthcare reforms agreed last month. The latter goes before the Bundestag next month, with other reforms to follow by year-end.
Standing beside Merz in the chancellery garden, federal finance minister Lars Klingbeil – co-leader of the centre-left Social Democratic Party (SPD), praised the reform package as a call to action: “The time when we could simply describe the problems is largely over.”
After a year of rows and debate over Germany’s problems, it remains an open question whether these measures are enough to kick-start the economy, save industrial production and counter the rise and rise of the far-right Alternative for Germany (AfD).
Now Germany’s most popular partner in national polls, the AfD is four points ahead of Merz’s CDU and is on course to take power in its first federal state in September.
Without mentioning the AfD by name, Merz acknowledged the closing credibility window: “We are all in agreement that the political centre has to show that we are shaping and modernising our country and leading our country into the future ... we cannot hide in the past.”
After a bad-tempered first year in office, the 34-point reform paper is a mix of concrete proposals, aspirational suggestions and political compromise.
The latter point was clear from a proposed tax reform to cut taxes for low- and medium-earners while introducing a wealth tax on incomes over €250,000.
The €10 billion tax cut volume, less than half what was promised, was backed by the CDU in exchange for SPD concessions on labour protection.
In future, companies can employ people on a limited basis for up to four years before traditional hire-fire rules kick in, a change the CDU says will help start-ups.
German business lobby groups tried to be optimistic on Thursday, hoping their members will benefit from a promised red tape cull.
Particularly promising for them is a plan to scrap all company reporting obligations to state bodies – unless the body explicitly applies for, and justifies, its reintroduction.
Another cause for cheer: a new proposal that will consider all applications to state bodies as approved after four months unless the state body requests further information.
But Germany’s medical sector is up in arms over the end of a three-day window before employees need to apply for a doctor’s certificate.
Merz said the move is essential to boost productivity – or, put another way, to end skiving off work. But doctors predict the expected Monday morning rush will prevent them seeing more urgent patients.
For all the progress in the reform paper, critics suggested many measures amounted to Titanic deckchair rearranging aboard Europe’s largest economy.
The reform paper contains plans to extend bakery opening hours, for instance, but nothing to address the existential problems facing Germany’s industrial sector – in particular energy costs and financing.
Some 92 per cent of German firms admit they need to make urgent investments to secure their future but, according to a study on Wednesday, just 61 per cent plan to do so, with the others citing bureaucratic and credit hurdles.
While most reforms were well-flagged, the coalition pulled one surprise out of its sleeve: a new federal agency to build affordable housing and a new law to outlaw “disappropriation” of corporate landlords.
The latter pulls the legal rug from beneath a long-running campaign to force large landlords to sell large chunks of their holdings to local authorities in the German capital. It comes ahead of a Berlin state vote in September, where voters are likely to elect a government headed by the hard-left Linke, which supports disappropriation.
Chancellor Merz said Germany’s federal states were free to act as they wished on housing, but not “if it creates problems for all of us”.
“In the whole world people are asking: ‘what is up in Germany, do we have to expect disappropriation’,” he said. “Our answer will say clearly: ‘no’.”
Early reviews of Germany’s long-flagged reform package were mixed. Unions praised the wealth tax and criticised the shift on sick notes while employers praised an “overdue change of course” on bureaucracy.
“Now, no one must be allowed pull the handbrake,” said Rainer Dulger, head of the leading employers’ lobby group.
Economic analysts were also divided in their assessment. Berlin’s DIW economic institute called the reforms a “political compromise with limited ambition”.
Munich’s Ifo economic institute said the reforms marked “an important contribution to overcoming Germany’s economic stagnation, but further steps must follow”.
