July 2, 2026, 2:56 p.mJuly 2, 2026, 2:56 p.m
The ruling Christian and Social Democrats want to lead Germany out of the economic crisis with tax relief of ten billion euros, more flexible employment contracts and a massive reduction in bureaucracy.
Markus Söder, Friedrich Merz, Bärbel Bas and Lars Klingbeil will present their results on Thursday.Image: keystone
In the coalition committee, the leaders of the governing parties agreed on a reform package with 34 points, which also includes the reforms that have already been initiated in the areas of pensions and health. The planned flexibilization of working hours was postponed, thus removing a major point of conflict with the unions.
For months, the coalition partners of the Christian Democratic Union (CDU and CSU) and the social democratic SPD had been working in different rounds on the major reform package that is intended to stabilize the social security systems and get the stagnating German economy back on track.
On Wednesday evening it only took them seven and a half hours to put the lid on. The extension of the negotiations over several days that many had predicted did not materialize. In the morning, the four party leaders of the three coalition parties walked quite elatedly into the garden of the Chancellery to present their results.
“We want to get Germany afloat again. “It is now clear that this is possible,” said Chancellor Friedrich Merz (CDU). Labor Minister Bärbel Bas (SPD) acknowledged the willingness to compromise on both sides and emphasized the coalition’s responsibility. CSU boss Markus Söder admitted that the package was not the “big bang”, but was a further step out of the crisis.
These are the most important points
- Income tax: As of January 1, 2027, millions of taxpayers with small and medium incomes are to receive financial relief. A working family with two children and a total taxable income of 60,000 euros should pay up to 600 euros less in taxes per year compared to today. In return, the rich tax should take effect earlier and rise to 47 percent for incomes of 280,000 euros or more. In terms of relief volume, significantly higher amounts were originally discussed – up to 28 billion euros. But the coalition couldn’t get the money together. Merz still spoke of a “big leap”.
- Labor market: The fact that the change from an eight-hour day to weekly working hours has been postponed is likely to annoy employers. This gives you significantly more leeway for fixed-term employment contracts. Telephone sick leave, which was widely praised during the Corona crisis, is to be abolished again. This in turn particularly annoys the unions.
- Reducing bureaucracy: A whole package of measures was decided to relieve the burden on the economy and citizens. Among other things, legal reporting obligations to government authorities should be abolished across the board and the submission of tax returns should be made easier.
Some reform steps had already been taken before the round in the Chancellery. The savings package for statutory health insurance is already going through the parliamentary process. When it comes to pension reform, the Union and the SPD agree that the proposals of a commission set up with politicians and experts should be implemented one-on-one by the end of the year. This was confirmed by the coalition committee.
Reform project crucial for coalition
The reform package is intended not only to stimulate the economy, but also to get the ailing government coalition back on track. It is considered the most important project of the black and red coalition in the current electoral period. A first attempt at an agreement in April in the Villa Borsig in Berlin failed miserably and plunged the alliance into a deep crisis. The government parties’ poll numbers continued to plummet, and the AfD has now overtaken the CDU/CSU as the strongest force.
With the reform package, the government now wants to show its ability to act shortly before the important elections for the parliaments of two eastern German federal states in September. She learned her lessons from Villa Borsig – craftsmanship, communication and even culinary.
Cordon bleu instead of pizza
Negotiators prepared the crucial round of meetings for weeks, and even the catering was improved to lift the mood: there was cordon bleu after Söder had to call the pizza delivery man in the Villa Borsig, which belongs to the Foreign Office. The results are now sold together – without anyone celebrating as a winner or sulking as a loser.
The political center must prove: “We are shaping our country, we are modernizing our country and we are leading our country into the future,” emphasized Merz. But this will only work if the package is not trashed by others.
What do employers and unions do?
The initial reactions from business and trade unions at least give the Union and the SPD hope that this could succeed. “With its reform package, the coalition has made a long-overdue change of course,” said employer president Rainer Dulger in Berlin. However, there are also doubts among employers as to whether the package can actually generate growth.
The first analysis by DGB boss Yasmin Fahimi was mostly positive – apart from individual points such as the abolition of telephone sick leave. She promised to accompany the reform process “constructively and with commitment”. However, Verdi boss Frank Werneke accused the coalition of saying that the reform package was at the expense of employees in key areas.
Is the mood changing for the better?
Then there is the question of whether the coalition can convince a broad majority of the population with the reforms. This is likely to be the most difficult task after the coalition, which has been in power since May 2025, lost a lot of trust in its first year of government and slipped to lows in the polls.
“We simply have to develop a passion for the future of our country”
At the press conference in the Chancellery Garden, Merz called on people in Germany to take part in the reforms: “We simply have to develop a passion for the future of our country,” he demands. (hkl/sda/dpa)