Agency Report –
Germany’s ruling coalition has reached important agreements on electric vehicle subsidies, pensions and a new unemployment benefit, Chancellor Friedrich Merz said on Thursday.
After a marathon eight-hour session of deliberations in the Chancellery that lasted well into Wednesday night, a deal was sealed between Merz’s conservative bloc and the centre-left Social Democratic Party (SPD), boosting the chancellor’s hopes of implementing his much-touted “autumn of reforms.”
However, a consensus on the German position towards the EU’s ban on new petrol and diesel cars by 2035 remains out of reach ahead of a major summit for the automotive sector in the Chancellery later on Thursday.
New basic jobseeker benefit
Outlining the results of the meeting at a a press conference in Berlin on Thursday, Merz said “there will be a new basic jobseeker benefit, as agreed in the coalition agreement.”
The focus is on tightening up the obligations of benefit recipients and cracking down on abuse of the system, he said. “We will significantly strengthen obligations to cooperate and we will also significantly increase the possibilities for sanctions.
The policy, strongly backed by Merz’s Christian Democratic Union (CDU) and the Bavaria-only Christian Social Union (CSU), faced resistance from the left flank of the SPD, but was pushed through by the party’s leaders, Vice Chancellor Lars Klingbeil and Labour Minister Bärbel Bas.
“Those who don’t cooperate will have a hard time,” said Bas. “We are tightening sanctions to the limit of what is constitutionally permissible.”
She insisted that the crackdown would not affect people with physical or mental health issues. “We don’t want to hit the wrong people,” she added.
The new benefit – which requires parliamentary approval – is to replace the existing “citizen’s benefit” for jobseekers, a landmark achievement of the previous SPD-led coalition that only took effect in early 2023.
CSU leader Markus Söder, the premier of the powerful southern state of Bavaria, said: “The citizen’s benefit is now history.”
Electric vehicle subsidies
Another key breakthrough of Wednesday’s coalition committee meeting was on subsidies for electric vehicles.
The government is set to offer new incentives for low and medium-income households to purchase electric vehicles, aiming to support the transition to climate-neutral mobility and provide “tangible benefits for consumers,” according to a resolution passed by the committee members.
But with representatives of Germany’s crucial carmaking sector, trade unions and political leaders set to convene in Berlin to discuss how to resolve the crisis-hit automotive industry, the failure to reach a common position on the EU’s 2035 combustion engine ban was a setback for the coalition.
The policy, introduced in Brussels in 2023, is set to be reviewed by the end of the year amid heavy pushback from car manufacturers.
While the centre-right CDU/CSU alliance favours scrapping the target, parts of the SPD are concerned by the environmental and economic impacts of the U-turn, with Environment Minister Carsten Schneider a noted opponent.
Rumours of a potential compromise involving hybrid cars have swirled in recent days, but Merz said that a final agreement could not be reached in the coalition committee on Wednesday.
“We are not presenting the automotive industry with a ready-made political position,” the chancellor said. “Instead, we want to talk to the automotive industry about what we need to do to overcome the severe crisis in the German automotive industry and its suppliers as quickly as possible.”
SPD co-leader Klingbeil – who also serves as finance minister – added: “If you invite people to a dialogue, you shouldn’t end the dialogue beforehand, but afterwards.”
‘Goodatmosphere’ as deal reached on working pensioners
Despite the notable disunity on the combustion engine ban, Merz said the talks took place in a “really good atmosphere.”
“There was also a serious mood, because we are in serious times,” added Söder.
Merz’s coalition, which took office in May after February’s parliamentary elections, is hoping to achieve a series of legislative reforms before the end of the year, with the aim of boosting the sluggish German economy after two years of recession.
One measure that could be advanced in the Cabinet as soon as next week following Wednesday’s agreement is the so-called “active retirement,” allowing pensioners to earn €2,000 ($2,320) tax-free every month if they continue working beyond the retirement age.
If approved in parliament, the policy could take force by January.
