Embarrassing U-turn for Merz as German coalition drops workers' bonus

The German government is dropping its planned €1,000 ($1,170) tax-free bonus for workers in an embarrassing U-turn for Chancellor Friedrich Merz, lawmakers confirmed on Wednesday.

The proposal, put forward by Merz's coalition in response to soaring prices due to the war in Iran, faced heavy opposition from employers and was rejected last week in the Bundesrat, Germany's upper house of parliament. 

Jens Spahn, the parliamentary leader for Merz's conservatives, announced that the plan has been dropped in a letter to lawmakers seen by dpa on Wednesday.

The reversal is another blow for Merz's coalition with the centre-left Social Democrats (SPD), which has struggled to combat the economic consequences of Iran's blockade of the Strait of Hormuz, a key waterway for the global oil and gas trade. 

Fuel prices have surged at the pump, causing a heavy burden for German motorists. An initial bill by the government to limit petrol stations to raising prices once a day failed to bring down costs, prompting the coalition to seek further measures. 

Among the proposed solutions was a one-off payment of up to €1,000 by companies to their employees. However, the measure received immediate blowback from employers' representatives, who warned that many firms are already struggling and incapable of handing out significant bonuses. 

News of the government's plan to drop the proposal came after senior ministers came together for a crunch meeting of the coalition committee on Tuesday. 

The six-hour meeting ended without major agreements as the parties continue to negotiate over a much-heralded package of reforms to social security and pensions, which is due to be passed before the summer break begins on July 10.