German coalition agrees sweeping reforms in push to revive economy

Germany's governing coalition has agreed on a major 34-point reform package spanning taxation, labour market reforms and bureaucratic processes designed to "get Germany back on its feet" after years of economic woes.

"We are providing relief for workers and businesses by cutting taxes and reducing red tape," Chancellor Friedrich Merz said on Thursday, while presenting the package to the press alongside ministers from his coalition government. 

"Right from the start, we set ourselves an agenda with a single goal: we want to get Germany back on its feet. It is now clear that this is possible," the chancellor added.

The reform package is regarded as the central domestic policy project of the coalition between the conservative Christian Democrats (CDU), its Christian Social Union (CSU) Bavarian sister party and the centre-left Social Democrats (SPD).

It is also a chance for the government to project an image of unity and progress after an earlier attempt to reach an agreement collapsed, and with the parties' approval ratings sliding ahead of state elections in eastern Germany later this year.

The package includes tax relief for those on low and middle incomes from 2027, financed by changes to the wealth tax for high earners. It also provides for compensation for tax shortfalls for Germany's federal states and local authorities.

The coalition partners also agreed on a number of changes for the labour market, including allowing employers to offer more fixed-term employment contracts and to terminate employment relationships with high earners more easily.

Other reforms included scrapping the practice of issuing sick notes over the phone, as well as abolishing reporting requirements and reducing data protection standards to the European minimum in order to cut red tape.

"We're making progress" said CSU leader Markus Söder. He said the reform package alone did not mark a "big bang," but a further step out of the crisis.

It also shows that the coalition is capable of finding common ground and taking action, Söder emphasized.

Merz said he hoped the reforms would bring about change that would lift the country out of its gloomy mood. "And I assume that, the moment it becomes clear that we are staying on the right track, support for the federal government will rise."