Germany’s Coalition Agreement for a new federal Government

After federal elections of 26 September 2021 in which the Christian Democrats suffered a significant set-back, and the Social Democrats as their partner in government earned an astonishing revival, along with the Greens and the liberal Free Democratic Party, a new three party-coalition of those three has emerged to form a new federal government. Under the heading “Dare more progress – Alliance for Freedom, Justice and Sustainability” they have defined not only the grand picture of their policies for the next four years but also many details in a 177-pages Coalition Agreement (hereinafter: “Agreement”) which is legally not binding for Parliament but sets a precedent in political terms.

In the following, the main terms of the Agreement pertaining to the economy and business shall be summarized.

1. “Modern state, digitiziation, and innovation”

The keywords here are infrastructural development, de-bureaucratization, digitalization of administrations and procedures. The timeframe for public planning and authorization procedures is to be reduced by 50%, also by means of digitalization and acceleration of court proceedings. Massive investment in fibre-optics and latest communication technologies will be made. The regulatory framework for telecommunications and the Internet will be reviewed comprehensively, with a view to further alignment with EU rules (Digital Services Act). Conditions for science, research and innovation are to be improved; among others, the conditions for start-ups will be improved. Investment in high tech, e.g., AI, Quantum technologies, Cyber security, Distributed Ledger technology (DLT), robotics etc. shall be fostered. The EU chips Act will be promoted.

2. Climate Change

Climate Change is the other overall leitmotiv of the Agreement, with a commitment to decarbonization with a view to compliance with the 1.5°C path, and carbon-neutrality by 2045 at the latest. The phase-out of coal-fired power generation will be accelerated, “in the ideal case” by 2030, whilst nuclear energy remains ruled out. Pricing for CO2-emissions is to be kept at € 60/t at the minimum. Consequently, a massive development of renewable energies will be necessary (with 2% of the territory to be earmarked for wind plants) and of modern gas-fired power-plants. In parallel, rapid development of a hydrogen economy will be pursued, with the necessary infrastructure and vastly enhanced “green” electrolysis capacities. Electricity grids will be refurbished accordingly, with planning procedures significantly simplified and accelerated. The European Commission's plans to strengthen the existing emissions trading system are supported and an ambitious reform is advocated.

3. Mobility

In the context of de-carbonization, the transformation of the German car industry towards electro-mobility will be supported through alignment of the regulatory framework and support measures, with a view to Germany becoming a leading electromobility market with at least 15 million electrical vehicles in 2030. Starting 2035 only CO2-neutral vehicles will be authorized for circulation. The electrical charging infrastructure is to be ramped-up accordingly. Investment in road and rail infrastructure will be increased, with a focus on the latter, as well as in public transport. Freight transport via rail is to be increased by 25% by 2030, and passenger transport by train will be doubled.

4. Business

4.1 International Trade:

The Coalition will support an internationally harmonized minimum price for CO2, and an EU-wide border compensation mechanism for CO2-duties (or similar instruments), however in compliance with WTO rules, avoiding disadvantages for the export industry and Greenwashing, and within the existing emission trading system. Multilateralism and the further development of the WTO are to be reinforced, including the renewal of the rules on market-distorting subsidies, the lifting of the blockade of the Dispute Settlement Mechanism and an alignment with the Paris Climate Agreement and the UN Global Sustainability Goal. Future EU trade agreements (with Chile, New Zealand, Australia, ASEAN, India, etc.) are to include effective sustainability standards using a dispute settlement mechanism. The decision whether to ratify CETA (Comprehensive Economic and Trade Agreement with the USA) will be taken after examination by the Constitutional Court. Investment Agreements are to focus on direct expropriations and discrimination, avoiding misuse. German customs procedures are to be accelerated.

4.2 Competition:

It will be examined how significant, persistent and repeated breaches of economic consumer law standards can be sanctioned by the Bundeskartellamt in analogy to breaches of the Act against Restraints of Competition. The ministerial authorization procedure for mergers will be modified in a way to allow for appropriate legal action against a ministerial authorization, and for scrutiny in Parliament. The possibility of unbundling of enterprises at European level, irrespectively of abuse, is supported as a last resort in entrenched markets. Market-dominant companies are to be obliged to ensure interoperability at European level and in national anti-trust law. The Coalition advocates adoption of an ambitious Digital Markets Act (DMA) at EU-level, and its enforcement by the competition authorities of the member states. EU merger control should prevent innovation-inhibiting strategic acquisitions of potential competitors (“killer acquisitions”).

4.3 Corporate and business law:

Rules on corporate sanctions, including the level of sanctions, will be reviewed in order to improve legal certainty for companies regarding compliance obligations, and to create a precise legal framework for internal investigations. The EU Whistleblower Directive will be implemented in a legally secure and practicable manner, protecting whistleblowers from legal disadvantages. The formation of companies will be facilitated by digitization of company law and by allowing for notarization by video communication also in the case of formation with contributions in kind. General meetings of stock-holding companies online will be possible permanently, in respect of shareholders’ rights. Corporate Co-determination: The growth of SE companies shall no longer lead to complete avoidance of co-determination (no “freezing effect”). The group attribution in the Co-Determination Act is to be extended to the One-Third Participation Act if there is de facto real control. Measures against the abuse of cost reimbursements for cease-and-desist letters under the Unfair Competition Act will be analyzed.

4.4 Aerospace and maritime industry:

The Coalition will develop a new space strategy, also for the avoidance and recovery of space debris. Germany is to be strengthened as an aerospace production base. Research into and the market ramp-up of synthetic fuels for climate-neutral flying will be supported, and contracting procedures in connection with the aeronautics research programme for the development and use of digital tools, process development, materials research and lightweight construction will be further accelerated and advance payments made possible. Research for sustainable fuels, quieter engines and a platform for the simulation and optimization of the entire aviation system in terms of its impact on the climate will be reinforced. Shipbuilding will be strengthened, including the entire supply chain, ship recycling, and in particular climate-friendly propulsion systems.

4.5 Building and Housing:

The Coalition will launch a new departure in construction, housing and urban development policy, the goal being to build 400,000 new homes per year, including 100,000 publicly subsidized homes. The federal government's financial support for social housing construction, including the promotion of social housing for owner-occupiers, will be increased. A new non-profit housing association with tax incentives and investment subsidies will be created. Costs of housing construction are to be reduced through serial construction, digitization, de-bureaucratization and standardization. Modular and serial construction and refurbishment will be accelerated through type approvals. The construction and real estate industry as well as all levels of administration are to be supported in mastering digitization, implementing Open-BIM and uniform interfaces/standards. As part of the immediate climate protection programme, a support scheme for new residential construction will be introduced and the Building Energy Act (GEG) will be amended; new heating systems installed from 2025 onwards will have to operate with 65% renewable energy. Starting 2024, standards for significant extensions, conversions and extensions of existing buildings in the GEG will be adjusted considerably.

4.6 Raw Materials, Mining, Supply Chains:

The focus is here on securing a sustainable chain of supply of raw materials, and on orienting their domestic extraction in accordance with ecologic criteria. Mining law is to be modernized. Recycling and reducing resource consumption are to be used and developed. EU plans for a supply chain law based on the UN Guiding Principles on Business and Human Rights will be supported, with a view not to overburden small and medium-sized enterprises. The EU Commission's proposal for a Deforestation-Free Supply Chains Act, and for a ban on imports of products from forced labour will be supported.

4.7 Chemical industry:

The REACH regulation (EU Regulation on the Registration, Evaluation, Authorization and Restriction of Chemicals) will be further developed, with a view to base authorizations on assessment in the context of use. A national plan for protection against endocrine disruptors will be developed. Imports not meeting EU standards will be better controlled, and product recalls will be facilitated. Human biomonitoring and continuous funding therefor will be ensured.

4.8 Small and Medium-Sized Enterprises (SME):

Opportunities for small and medium-sized enterprises to participate in public bidding-procedures are to be improved. Procedures for funding programmes and investment grants shall be simplified and digitalized.

4.9 Public Procurement:

Public Procurement procedures shall be simplified, professionalized, digitized, and accelerated, considering economic, social, ecologic, and innovative aspects. The public sector should participate in the development of a system for calculating climate and environmental costs.

4.10 Consumers:

At EU level protection against over-indebtedness caused by non-market interest rates and usury should be strengthened for all forms of loans, and misleading advertising should be banned. Debtor and insolvency advice are to be extended. Early repayment fees for loans will be limited to a reasonable level, shall ensure fair access to a basic account and create transparency. Supervision of debt collection companies will be bundled. Sustainability by design shall be made the standard for products, and durability and repairability of a product a recognizable feature of product properties (right to repair). Access to spare parts and repair instructions shall be ensured. Manufacturers will have to provide updates during the normal period of use. For durable goods, a flexible warranty period based on the respective service life determined by the manufacturer will be introduced.

5. Employment, Welfare State, and Justice

The legal minimum wage will be increased in a one-shot-action to € 12,00 /h (from € 9,60/h). Flexible work-time schemes will be supported, and rules for home office further developed. Employers shall not object to requests for home office work by employees unless operational concerns are opposed. The minimum pension level of 48 % will be secured in the long term. In this legislative period, the contribution rate will not rise above 20 percent. There will be no pension cuts and no increase in the statutory retirement age. A capital cover of the statutory pension insurance will be introduced in order to stabilize the pension level and pension contribution rate in the long term.

In the judicial system, collective action will be expanded. The Capital Investor Model Case Act (Kapitalanleger-Musterverfahrensgesetz) and related legislation will be reviewed. The EU Directive on collective actions will be implemented in a user-friendly manner and by further developing the model declaratory action, also for small companies. Requirements for associations entitled to sue in collective action will be maintained. For international commercial and economic disputes English-speaking special chambers will be made possible. The legal framework for legal tech companies will be expanded, establishing clear quality and transparency requirements for them. For the legal profession the ban on contingency fees will be modified and the ban on third-party ownership will be reviewed.

6. Europe and Foreign Policy

The Coalition supports the idea of a constitutional convention and further development of the Union towards a federal European state, decentralized and organized in accordance with the principles of subsidiarity and proportionality and based on the Charter of Fundamental Rights. A uniform European electoral law with partly transnational lists and a binding system of leading candidates will be supported. The work of the European Council is to be made more transparent. The unanimity rule in the EU Council of Ministers in the Common Foreign and Security Policy (CFSP) is to be replaced by qualified majority voting, with a mechanism for smaller Member States to participate appropriately. In strategic fields, such as energy supply, health, raw materials imports, and digital technology, Europe shall become less dependent. Critical technology and infrastructure shall be protected better, standards and procurement adjusted accordingly. A European Open Source-G 5/6 consortium shall be initiated for mobile telecommunications. Germany will initialize an investment offensive focusing on transnational projects with added value for the EU in its entirety, and on closing gaps in networks.

7. Investment and Sustainable Finance, Taxes

Despite enormous budgetary constraints and huge plans for investments, no tax increases are envisaged so far. It is intended to reduce or abolish subsidies considered not to be in line with climate policy. An investment premium for climate protection and digital assets shall be introduced for FY 2022 /2023 providing for deduction a proportion of the acquisition and production costs of fixed assets acquired or produced in the respective year serving these purposes from taxable profits ("super depreciation"). The extended loss offset will be continued until end 2023, and the loss carryforward will be extended to the two immediately preceding assessment periods. Land transfer tax: groups of companies will no further be entitled to exceptions for land transfers within group companies, so land transfer tax (up to 6.5%!) will fully apply.

8. Conclusion

It is obvious that the plans of the future government for massive investment in the fields of climate protection, building & infrastructure, digitization and mobility should offer vast opportunities for private business. Also, simplification and acceleration of administrative procedures, as promised, should facilitate dealing with public procurement and regulatory agencies. Overall, the plans of the new government appear to be promising for the business community. However, financing remains less than clear given strict constitutional limits for indebtment and already existing massive debts. In addition, massive spending for pension and welfare benefits and increased cost of labour may have inflationary effects difficult to control.

The above is only a brief summary of major aspects of the Agreement. Therefore, in addition to this overview of the new German government plans, we will drill down on specific aspects relevant for special areas of law and/or business sectors in the coming weeks and months and will start later with a detailed analyses of the labor law and labor market policy aspects of the coalition agreement. Stay tuned!