After the collapse of the German government last year and snap elections on 23 February 2025, a new government now appears somewhat larger on the horizon. Following relatively swift and discreet negotiations between the conservative CDU/CSU and the socialist SPD, an 11-page document was produced and presented on 8 March 2025. These exploratory talks aim to establish a basis for a coalition between the CDU/CSU and the SPD, focusing on topics of absolute priority. Coalition talks are scheduled to take place in the coming weeks, after which a detailed coalition agreement will outline the government’s new agenda.
Industry and economic policy: Reading between the lines
Both sides agree on the need to boost investment using both private and public funds. The approach is expected to stimulate venture capital, residential construction and energy infrastructure. Investment incentives in renewable energy also seem likely, alongside the potential reintroduction of parts of the previously proposed Future Financing Act 2 (link to our German blogpost). These measures come in addition to agreed exemptions from the debt brake and the creation of a special fund for infrastructure and climate change mitigation programmes. The specifics of how these goals will be achieved remain unclear.
A key point in the election campaigns was reducing bureaucracy – a subject addressed in the exploratory paper. The aim is to reduce administrative costs for businesses by 25 per cent over the next four years and minimise reporting, documentation and statistical obligations. The future of the Germany’s Supply Chain Duty of Care Act, the European Corporate Sustainability Due Diligence Directive (CSDDD), and the implementation of the Corporate Sustainability Reporting Directive (CSRD), will also be negotiated during the upcoming coalition talks.
The automotive industry is recognised as a ‘leading industry’. Both the CDU/CSU and SPD commit to openness towards new technologies and aim to promote e-mobility through purchase incentives, though e-mobility is not the only propulsion method being considered. The future of combustion engines remains unresolved: the future government’s stance may not be as firm as that of the previous government, which supported a European ban on combustion engines sales by 2035. This ambiguity can be interpreted in various directions, suggesting that concessions may be necessary.
Tax policy: Consensus achieved, implementation uncertain
The exploratory paper references the introduction of a corporate tax reform and targeted incentives for investment in Germany as key drivers of economic growth. During the election campaign, the SPD proposed a tax refund and tax relief scheme on investments similar to the IRA and to the draft provisions in the Growth Act of 2023. The CDU/CSU, on the other hand, advocates a broader corporate tax reform aiming for a 25 per cent tax rate in the long run. It is uncertain whether both goals can be fully financed and implemented. This question has been deferred to the coalition negotiations.
Energy policy
The CDU/CSU and SPD recognise global warming as a global challenge and affirm their commitment to existing national and EU climate targets. On energy prices, they propose significant relief through lowering the electricity tax to the European minimum and halving the transmission grid fees – amounting to at least a five-cent reduction per kWh. The goal is to permanently cap grid fees and expand electricity price compensation to other energy-intensive sectors.
This existing electricity price-compensation was introduced to keep energy-intensive companies competitive and prevent production from relocating abroad. The new plan would further reduce electricity prices and cap grid fees for industrial consumers. The question of financing remains unresolved, as the proposal would add another significant cost factor to the regular budget.
A legislative package for Carbon Capture and Storage (CCS) is to be (re-)introduced ‘immediately after the beginning of the legislative period’, building on a proposal already presented in the last legislative term. The planned German hydrogen network should also connect industrial hubs in the south and east. Meanwhile, the creation of lead markets for climate-neutral products is anticipated – particularly in relation to green steel, a green gas quota, and public procurement law.
Missing anything?! Amendments to the German Buildings Energy Act, the “Heating Act,” and heat pumps—topics extensively debated by the previous government—are not addressed in the exploratory paper. The climate subsidy is also not mentioned, possibly because it competes with proposed reductions in electricity tax. Both topics may still surface in the coalition negotiations.
Labour law
The parties have reached consensus on a law enforcing compliance with collective bargaining agreements, potentially reviving a modified draft from the previous legislative period. Working hours would become more flexible by setting a weekly maximum instead of a daily limit, aligning with the European Working Time Directive. Additionally, surcharges for overtime would be exempt from tax if the overtime exceeds the collectively agreed – or full-time – work threshold.
The minimum wage has been a recurring theme throughout the election campaigns. Interestingly, the exploratory paper adopts many of the SPD’s campaign buzzwords, and a minimum wage of €15 in 2026 is seen as ‘achievable’ – though it does not explicitly mention a statutory increase. Instead, it emphasises the independent Minimum Wage Commission, noting that the Commission should align its decisions with wage developments and maintain the minimum salary at 60 per cent of median gross income for full-time workers.
Social law
Pension levels are to be secured, and occupational and private pension schemes strengthened and reformed. The exploratory paper does not provide details on how these potentially significant measures will be carried out. Both topics were already under discussion by the previous federal government. With the new proposals, voluntary employment after reaching the statutory retirement age would allow a monthly salary of up to €2,000 to remain tax-free.
The agenda on digital, health and migration
During the election campaign, other key topics were digitisation, healthcare and migration – each of which is also addressed in the exploratory paper. It outlines plans to continue digitising administrative processes and intensify efforts to combat disinformation through the Digital Service Act (DSA).
A ‘major reform’ of the healthcare system has also been announced, though its specifics are yet to be determined.
On migration, both the CDU/CSU and the SPD have made compromises. Overall, the CDU/CSU’s tone is notably softer than it was during the election campaign.
Hot topic: Special assets and constitutional debt brake
To implement the results of the exploratory talks, the CDU/CSU and SPD have agreed on a reform of the debt brake, requiring an amendment to the German Basic Law. A special fund would be established to provide substantial funding for infrastructure and climate change mitigation programmes. This will be put to a vote in the current Parliament and, if passed, would open up significant financial opportunities for the new government. A two-thirds majority is required needed in both the Parliament and the Federal Council, which can be achieved with support of the Greens.
Summary and next steps
Both CDU/CSU and SPD had to make concessions to reach this first compromise. To learn more about the parties’ election manifestos, read here. Crucially, the agreement relies on a willingness to take on significant financial debt.
Coalition negotiations are expected to wrap up by late March or early April. Their outcomes will then be put to a vote at party conventions for the CDU and CSU, as well as to a members vote of the SPD. If approved – likely in mid-April – the coalition agreement covering 2025–2029 will be signed, paving the way to elect a new chancellor and form a new government.
