On March 28, 2025, coalition negotiations between the Union (CDU/CSU) and the Social Democratic Party (SPD) are entering a decisive phase, five weeks after the federal election. A group of 19 negotiators, including the four party leaders Friedrich Merz (CDU), Markus Söder (CSU), Lars Klingbeil (SPD), and Saskia Esken (SPD), will address contentious issues that remain unresolved. The original goal was to finalize negotiations by Easter, but it is unclear if this deadline can be met.
The main point of contention in these negotiations is migration policy. Disagreements persist regarding the handling of asylum seekers, particularly whether the next government will comply with the Union's demand to process asylum applications outside the EU. The Union also wants to cut social benefits for those required to leave the country to what it deems "constitutionally required minimums." Additionally, there are discussions about whether to revoke German citizenship from individuals identified as "supporters of terrorism, anti-Semites, and extremists who call for the abolition of the free democratic basic order" if they hold another citizenship.
Financial matters are another major sticking point. The working group for budget and taxes has passed on many contentious points to the top negotiating group. The SPD aims to raise the top income tax rate from 42 to 47 percent, while the Union wants the rate to apply only to higher incomes starting at €80,000. The SPD is also pushing to increase taxes on capital income and reintroduce a wealth tax, which the Union opposes. In terms of inheritance tax, the Union seeks to increase allowances for family members, while the SPD wants to scrutinize exceptions for the inheritance of businesses.
On pensions, both parties have agreed to secure the pension level, but they disagree on the specifics. The SPD wants to maintain the current level of 48 percent, which would likely lead to higher contribution rates. The Union counters with a proposal to increase the required contribution years from 45 to 47. Furthermore, the SPD insists that the costs of expanding the mother's pension, estimated at around €5 billion per year, should be covered by tax revenues rather than contribution funds.
In the area of environmental policy, the Union has long opposed the EU's decision to ban new cars with diesel and gasoline engines by 2035. They are advocating for the reversal of this ban, while the SPD supports the goal of only allowing zero-emission vehicles throughout the EU by the same year. There is also disagreement on promoting electromobility through purchase incentives and the introduction of a general speed limit on highways, with the SPD proposing a limit of 130 km/h, which the Union rejects.
As the negotiations intensify, SPD leader Lars Klingbeil has emphasized the need for a clear plan to modernize Germany and ensure its competitiveness, particularly in the face of economic challenges. He stated, "We need to formulate something great that meets the challenges in the country." Meanwhile, CDU Deputy Chairman Michael Kretschmer has called for a 100-day immediate program with concrete measures to signal a new direction for the government.
However, there are significant financial hurdles to overcome. Calculations from the Federal Ministry of Finance indicate that the future federal government will face a financial gap of approximately €110 billion by 2029. To fulfill all proposed initiatives, the negotiating group would need to raise around €600 billion over the next four years, a daunting task given the current economic climate.
Resistance within the Union is evident regarding the SPD's proposed tax changes. CSU leader Markus Söder has firmly stated, "We will not raise taxes. We need tax cuts," as he reiterated the Union's commitment to its campaign promises of tax reductions for all, including high earners. The SPD, on the other hand, is advocating for a more equitable distribution of the tax burden, focusing on relieving lower and middle-income taxpayers while asking the wealthy to contribute more.
Despite these challenges, both parties are working towards compromises. The SPD's push for a fundamental change in the taxation of capital gains, particularly affecting Bitcoin and other cryptocurrencies, has raised eyebrows. They propose to abolish the existing one-year holding period that allows profits from cryptocurrencies to remain tax-free, imposing a 30 percent capital gains tax on all crypto profits regardless of holding duration.
This proposed change could significantly impact the cryptocurrency market in Germany, making it less attractive as a means of payment. The SPD also plans to review regulations on crypto assets for potential loopholes, indicating a move towards increased control rather than innovation in the sector.
As the negotiations proceed, the SPD's plans for a digital euro that protects consumer privacy contrast sharply with their stance on cryptocurrencies, raising questions about the future of digital currencies in Germany.
While the SPD's proposals face opposition within the Union, the potential for compromise remains. Political negotiations often require give-and-take, and the SPD may need to adjust its demands in exchange for concessions in other areas.
Looking ahead, the negotiations are expected to be challenging, with significant issues still on the table, including defense policy, the future of the military draft, and development aid. The Union's push to reinstate conscription to address personnel shortages in the Bundeswehr is met with resistance from the SPD, which advocates for voluntary service.
With the clock ticking toward the Easter deadline, both parties must navigate these complex discussions carefully. The outcome of these negotiations will not only shape the future of the coalition government but also impact the lives of millions of Germans.
