Merz hopes to avoid German coalition crisis with vow to overhaul pensions

By Sarah Marsh and Andreas Rinke

BERLIN (Reuters) -German Chancellor Friedrich Merz said on Friday his coalition has agreed to carry out a comprehensive pension reform next year, a move aimed at easing concerns over an interim pensions bill that had threatened to destabilise his government.

The youth wing of Merz's conservatives had said they would not back the new bill, which aims to maintain current pension levels in relation to incomes while incentivizing people to work longer, as it would leave younger Germans to bear the costs.

Their veto of one of the conservatives' flagship compromises with coalition partner the Social Democrats (SPD) could block its passage through parliament, sparking a crisis of confidence in the government just six months into its tenure.

Merz's coalition has a majority of 12 votes in parliament, making it vulnerable to defections. The young conservatives hold 18 votes.

MERZ EXPECTS BILL TO PASS NEXT WEEK

The chancellor said, however, he was confident that parliament would pass the bill next week, given that it would now be accompanied by a resolution acknowledging the need for a deeper overhaul next year, as agreed by coalition leaders during their monthly meeting on Thursday.

"I expect approval," said Merz, who spoke with the young conservatives earlier on Friday, although they had not promised to back his bill.

Merz's conservatives and the SPD promised to provide more stability when they formed their "marriage of convenience" after the collapse of the previous three-way coalition led by Social Democrat Olaf Scholz.

But Merz's coalition has been beset by tensions since day one, when he became Germany's first chancellor to fail to be elected in a first round of voting.

While the coalition leaders have a good working relationship, they are struggling to keep their lawmakers in line. Many within Merz's conservative bloc are disappointed at the degree of compromise needed when their campaign promised radical change.

Some political analysts say Merz, who had never held government office before, is at fault for acting like a chief executive officer rather than working hard to win over different factions within his coalition.

That said, pensions and generational fairness are turning into key political flashpoints across Europe as populations age and public finances tighten.

France, for example, has had to suspend a landmark pension reform until after the 2027 election, sacrificing one of President Emmanuel Macron's legacy achievements to ensure the government's survival.

(Reporting by Sarah Marsh and Andreas RinkeEditing by Gareth Jones)