BERLIN – Following a decisive victory in the recent German elections, Friedrich Merz, leader of the Christian Democratic Union (CDU), has commenced efforts to establish a coalition government, prioritizing collaboration with the incumbent Social Democratic Party (SPD).

Merz's CDU secured the largest share of votes, but the need for a coalition partner is critical to maintain a stable government.

Merz has emphasized the urgency of negotiations, stating, "We will now be holding talks [with the SPD] over the next few days," focusing on issues such as foreign and security policy, migration management, and enhancing Germany's industrial capacity.

Discussions were slated to include SPD co-leader Lars Klingbeil and outgoing Chancellor Olaf Scholz.

Klingbeil adopted a cautious tone, indicating that joining a coalition was not guaranteed, although he affirmed the SPD's willingness to engage in discussions.

The recent election result has drastically reduced the seat shares of centrist parties—the SPD and CDU—by one-third compared to the last electoral cycle in 2021.

In the current parliament, a coalition of the CDU with the environmentalist Greens would still lack a majority, and the liberal Free Democrats (FDP) failed to secure seats, adding complexity to coalition dynamics.

The far-right Alternative for Germany (AfD) has seen a significant increase in votes, but Merz has ruled out any formal cooperation with the party.

Merz's electoral commitment to enhance Germany's defense capabilities and promote European autonomy from US influence presents a fiscal challenge, particularly given Germany’s strict constitutional debt limits.

Analysis indicates that to meet NATO’s defense spending target of 2% of GDP, an increase in funding from the current levels to approximately €95 billion annually would be necessary by 2028. This could rise to €140 billion for a 3% target.

Amending the constitutional debt rules requires a two-thirds majority in the Bundestag, a threshold that the CDU, SPD, and Greens narrowly missed.

In response to the urgency of the situation, there are discussions about calling a snap Bundestag meeting to address new debt and potential defense investment while operating within the current parliamentary setup.

One proposal involves reforming the 'debt brake', which limits structural public deficits to 0.35% of GDP, a measure critics argue hampers essential infrastructure and defense investments.

Alternatively, the creation of an extra-budgetary special fund could be initiated to bypass the constraints of the debt brake, utilizing a two-thirds majority in parliament.

The CDU has expressed a desire to uphold the debt limit; however, Merz has signaled a willingness to explore reform options during the campaign.

The SPD supports such reform, insisting that increasing defense spending should not detract from welfare and pension programs.

In a notable shift, Markus Söder, leader of the CDU’s Bavarian sister party, the Christian Social Union (CSU), advocated blending defense investments with necessary social spending, stressing the importance of maintaining social cohesion while strengthening national security.

Merz faces the potential of engaging in difficult negotiations with the far-left party The Left, which has indicated some openness to discussing reforms to the debt brake, despite its opposition to increased defense budgets.

In light of these developments, Germany's political landscape appears increasingly dynamic, with the urgency to reform existing fiscal rules becoming more pronounced amid shifting electoral returns.

Merz expressed commitment to restore faith in governmental capability following years of perceived difficulties in governance.