After weeks of discussions, Germany’s conservative and center-left parties reached an agreement on Wednesday to form a new government, setting the stage for new leadership in Europe’s largest economy after a period of political uncertainty.

Friedrich Merz, leader of the center-right Christian Democratic Union, is expected to succeed Olaf Scholz as Germany’s Chancellor under the agreement. The involved parties have scheduled a news conference at 3 p.m. (1300 GMT) to discuss the coalition deal.

Merz’s Union bloc, comprised of two parties, emerged as the strongest force in the Feb. 23 election. To secure a parliamentary majority, Merz partnered with the Social Democrats, Scholz’s center-left party, to form a coalition.

Merz’s election as Chancellor by parliament is expected to take place in early May. Before this, the coalition agreement must be approved by a vote of the Social Democrats’ membership and by a convention of Merz’s CDU.

Details of the agreement have not yet been released.

However, the two parties previously collaborated to pass legislation that would increase defense spending by relaxing strict debt regulations and establish a significant infrastructure fund to stimulate the struggling economy.

This represented a shift for Merz, whose party had previously opposed incurring new debt before the election, while leaving the door open to future changes to Germany’s self-imposed “debt brake.”

The election was held seven months ahead of schedule, following the collapse of Scholz’s unpopular coalition in November, after three years marked by internal disputes and widespread dissatisfaction. Since then, Germany, the EU’s most populous member, has been in a state of political instability.

Market volatility caused by U.S. President Donald Trump’s announcement of broad tariffs added pressure on Merz’s Union and the Social Democrats to finalize their coalition negotiations.

The tariffs threaten to worsen the problems of an export-dependent economy that has contracted for the last two years, making economic growth a key priority for the new government.

Growing concerns about the U.S.’s commitment to its European allies also contributed to the prospective coalition’s decision to increase defense spending. Merz stated last month that Europe must quickly strengthen its defense capabilities, adding that “‘whatever it takes’ must also go for our defense now.”

Another factor contributing to the urgency of reaching an agreement was a decline in the Union’s poll numbers, indicating a drop in support since the election, while the far-right Alternative for Germany, which came in second in February, gained ground as the political vacuum persisted.

The new coalition unites Germany’s traditional major parties from the post-World War II era. However, the Union’s victory in February was weak, and the Social Democrats had their worst showing in a national parliamentary election since the war.

Together, they hold 328 seats in the Bundestag, the 630-member lower house of parliament.

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