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(Bloomberg) — Germany’s conservatives and the Social Democrats agreed to deepen talks over forming a new government, a step forward as pressure builds on Chancellor-in-waiting Friedrich Merz to implement sweeping reforms. 

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At a press briefing in Berlin on Saturday, Merz said the parties have agreed to tighten border controls to reduce illegal immigration as well as implement reforms aimed at supporting German industry, including lowering energy costs and corporate taxes. 

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The parties also aim to ease the tax burden on middle-class households and encourage more companies to invest in Germany. Purchase incentives for electric cars will be revived, if the parties finalize a coalition deal and form a government. 

“Our country is expecting the democratic center to move on and move past previous struggles,” said Saskia Esken, co-leader of the Social Democrats, which slumped to its worst-ever postwar result in last month’s election.  

The Christian Democrat-led conservatives finished first in the vote, but need an agreement with the SPD — third behind the far-right Alternative for Germany — to secure a majority in the Bundestag. Both CDU leader Merz and SPD co-leader Lars Klingbeil said they would recommend their respective party boards to enter formal coalition negotiations next week.

The next stage involves detailed working groups to hammer out specific policy initiatives, which can take months. Merz has said his aim is to secure a coalition agreement by Germany’s Easter vacation, which begins on April 18. The SPD will also let its party members have the final say on any Merz-led coalition. That could push the start of the next German government into May.

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Alongside the coalition talks, Merz is under pressure to secure a wider agreement in the next two weeks to approve legislation detaching most defense expenditure from borrowing limits and setting up a €500 billion ($543 billion) infrastructure fund. The spending package is aimed reviving growth for Europe’s largest economy.

To secure the two-thirds support necessary to overcome constitutional barriers, Merz will need to keep his conservative faction on side in addition to the Social Democrats and win over the Greens. If all goes to plan, the upper house of parliament, or Bundesrat, will finalize the package on March 21. 

Merz expressed confidence that the Greens would back the plan, saying “nearly everything that we are proposing there has been policy proposals by the Greens themselves.”

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