Merz’s coalition agrees on joint measures to tackle Iran war fallout  

BERLIN — The leaders of Germany’s centrist coalition on Monday announced a range of measures to tackle the fallout of the U.S.-Israeli war with Iran.

Ministers in German Chancellor Friedrich Merz’s conservative alliance and their coalition partner, the center-left Social Democratic Party (SPD), had been at odds in recent weeks over the best way to address the growing strain that the war in the Middle East is placing on Germany’s already struggling economy. Monday’s measures were announced following closed-door negotiations that lasted all weekend.

“We will feel the consequences of this war for a long time to come, even after it is over,” Merz said at a press conference in Berlin. “That is why we want to do everything within our power — and while our resources are limited, they do exist — to maintain and improve the competitiveness of the German economy and to ease the situation for private households.”

Among the measures to ease the immediate pressure are a temporary reduction of the mineral oil tax by 17 cents per liter for two months, and the option for companies to pay their employees a tax-free “relief bonus” of up to €1,000.

“The strain over the past few weeks has been unbearable for many people — unbearable for small and medium-sized businesses, but also for individual citizens,” said Markus Söder, the leader of the Bavarian conservatives. “Daily reminders that prices are going up, like at the gas pump [have caused] a sense of powerlessness, anger, and a real heavy burden … We are acting against this.”

Merz’s government had hoped to revamp the EU’s biggest economy this year, but the fallout of the war in Iran could significantly hinder that prospect. The German economy shrunk in 2023 and 2024 following Russia’s full-scale invasion of Ukraine. Last year, the country’s gross domestic product grew by just 0.2 percent.

Bärbel Bas, one of the co-leaders of the SPD, pointed to the need to become more resilient.

“It is also important that we become less dependent on others,” she said. “That was also a discussion we had — that we need to make ourselves stronger so that we can withstand everything else around us that we have little control over.”

Péter Magyar’s victory in Hungary would make it easier for the European Union to act swiftly and in a united way over the coming months, she added.

The coalition announced that they would present a longer-term proposal for tax cuts for low- and middle-income earners in the coming weeks. They also aim to pass a systematic reform of the health insurance system in parliament by summer in a bid to ease the burden on German employers in light of the country’s rapidly aging population.

The coalition also confirmed its intention to do battle in Brussels and push to further weaken emissions targets for automakers, rejecting the European Commission’s small-car proposal, as well as a proposal to require offsets for extra emissions.

“The auto industry is inextricably linked not only to jobs, but also to Germany’s economic strength and identity,” Söder said. “We must not simply hand this important economic asset and market over to China.”

Jordyn Dahl contributed reporting from Brussels.