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Merz Secures Coalition with SPD Amid Trade War Fears and Rising AfD Support

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German conservative leader Friedrich Merz has successfully formed a coalition government with the centre-left Social Democrats (SPD), aiming to revitalize the country’s sluggish economy amid growing global trade tensions. After weeks of negotiation following February’s inconclusive election, the deal was announced Wednesday, just as fears of a global recession mount due to escalating tariffs triggered by U.S. President Donald Trump. At a press conference, Merz declared “Germany is back on track,” pledging tax cuts, increased defence spending, and a push to strengthen the electric vehicle industry.

The coalition agreement outlines major economic reforms, including lowering energy prices, scrapping a controversial supply chain law, and revisiting Germany’s strict “debt brake” policy. It also signals a harder stance on migration, with plans to restrict asylum processes and introduce voluntary military service. While Merz emphasized unity within the EU as a key to navigating global trade disputes, the coalition aims for a future transatlantic free trade deal. The CDU will control the chancellery, foreign, and economy ministries, while the SPD is expected to lead finance and defence, potentially retaining Boris Pistorius as defence minister.

However, the new government faces immediate challenges, as the far-right Alternative for Germany (AfD) has overtaken Merz’s conservatives in the latest Ipsos poll with 25% support. Despite Merz’s push for a borrowing-driven investment plan to boost infrastructure and defence, critics argue it undermines fiscal discipline. Economists warn that swift implementation of agreed policies is vital to cushioning Germany’s export-heavy economy from further trade shocks and averting a third straight year of recession.

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Germany: Far-right celebrate beating Scholz’s party

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Alice Weidel, leader of Germany’s far-right Alternative for Germany (AfD), expressed on Monday that there is a growing demand for a vote of confidence and new elections, stating that the public is frustrated. The AfD is celebrating their unexpected success in the European Parliament elections, where they secured 16%, surpassing Chancellor Olaf Scholz’s centre-left SPD.

Despite facing numerous scandals, including allegations of money laundering, connections to the Kremlin, and espionage for China, the AfD’s campaign managed to perform well. Their two lead candidates, Maximilian Krah and Petr Bystron, were sidelined due to investigations into these allegations, with Krah further tarnishing the party’s image by downplaying Nazi crimes. Consequently, France’s hard-right leader Marine Le Pen distanced herself from the AfD.

In an effort to rehabilitate the party’s image, Weidel has excluded Krah from the AfD’s EU delegation. The party attributes the scandals to a “media campaign” and criticizes the judiciary and intelligence services for being politically biased. This narrative of victimization seems to have resonated with voters.

The AfD’s effective use of social media and direct slogans contrasted with the government’s more abstract campaign messaging about “defending democracy.” Co-leader Tino Chrupalla emphasized addressing real issues over engaging in mutual insults, which appeared to appeal to the electorate, especially in eastern Germany and among younger voters.

Meanwhile, the governing coalition is grappling with the poor election results, described as a “painful humiliation” by an SPD leader. Although the conservatives led with 30%, their performance was not seen as particularly strong given the government’s unpopularity. In eastern Germany, the AfD outperformed them, and the results complicate the formation of a stable coalition in the national parliament.

This outcome bolsters CDU leader Friedrich Merz’s efforts to steer his party towards a more conservative stance and supports his ambition to become Germany’s next chancellor. However, the real beneficiaries of the election are the populists.

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