Coalition Talks: Negotiations Begin Over Multi-Billion Euro Distribution and Reforms

Following the agreement between the Union, SPD, and the Greens on a proposed multi-billion euro financial package, negotiations are now shifting towards the specifics of fund allocation. Economists and business leaders, alongside Union representatives, are advocating for necessary reforms and a reduction in bureaucracy to ensure that the additional borrowing yields tangible benefits and helps alleviate economic stagnation.

As the coalition talks unfold, CDU, CSU, and SPD aim to finalize key details by March 24. The focus is on who will receive what, with the Union pushing for structural reforms and cost-saving measures. Alexander Dobrindt, leader of the CSU parliamentary group, emphasized that while investment is essential, the tasks of reforming and consolidating are crucial moving forward. The SPD acknowledges the need for budget cuts, particularly concerning citizen welfare programs.

In addition, federal states will be permitted to collectively take out loans amounting to 0.35 percent of the GDP. They are also set to receive 100 billion euros from the planned 500 billion euro special fund designated for infrastructure investments. Thüringen's Minister-President, Mario Voigt, proposed using the Königsteiner key for distribution, which considers tax revenues and population size, advocating for a straightforward process based on trust in the states and municipalities.

States will have a say in the necessary constitutional amendments during the upcoming discussions in the Bundesrat. A two-thirds majority will be required there following the Bundestag's planned vote next Tuesday.

Local governments are also making their voices heard. André Berghegger, head of the Cities and Municipalities Association, expressed strong expectations that states will allocate a significant portion of these additional funds to municipalities. He cautioned against the creation of excessive bureaucratic hurdles or restrictions on fund usage, asserting that local authorities are well aware of their infrastructure needs.

Achim Brötel, president of the County Association, has called for a tripling of the municipal share of sales tax, amounting to approximately 11 to 12 billion euros annually. This, he argues, would empower local authorities to address pressing needs more effectively than a large investment program dictated by the federal government.

The business community is cautiously optimistic. Peter Adrian, president of the German Chamber of Industry and Commerce (DIHK), viewed the political consensus as a positive development but highlighted that without decisive reforms, economic weakness could persist, and additional debts could become a significant burden. He stressed the need for expedited planning and approval processes to stimulate both public and private investments effectively.

Economists are keeping a close watch as well. Clemens Fuest, president of the Ifo Institute, noted that while the risk of misusing the loan funds has not been completely eliminated, it has been mitigated. Veronika Grimm from the Council of Economic Experts urged the negotiating parties to commit to growth-oriented structural reforms, warning that over-reliance on financial resources could hinder progress.

The trade unions are also weighing in. Yasmin Fahimi, chair of the DGB, praised the agreement but insisted that the emerging coalition must develop a robust program focused on job security and sustainable economic growth, emphasizing the necessity of safeguarding social rights and security throughout the process.

Future plans include the following: amendments to the debt brake for states, allowing defense, civil protection, cybersecurity, and intelligence expenditures up to 1 percent of GDP (approximately 44 billion euros) to remain outside the debt limits. Any spending beyond this threshold will be financed through loans. In addition, a special fund for infrastructure and climate neutrality, worth 500 billion euros, will be established, free from debt brake constraints, over a twelve-year period.

The Budget Committee will convene on Sunday to recommend a decision for the Bundestag, with a plenary vote scheduled for Tuesday and a session of the Bundesrat on Friday. The coalition negotiation teams are expected to present their proposals for the coalition agreement by March 24. The new Bundestag is set to convene on March 25, with the CDU's chancellor candidate Friedrich Merz aiming to form a government by Easter, April 20.