Many challenges lie ahead for Germany's new coalition government with the country in a state of flux, facing mounting domestic concerns and increasingly strained transatlantic relations, experts have said.

Preliminary results declared on Sunday indicated that Friedrich Merz will be the next chancellor, with his center-right Union parties – an alliance of the Christian Democratic Union, or CDU, and the Christian Social Union, or CSU – winning 208 seats in the 630-seat Bundestag, or national parliament.

Merz said on Monday talks between the CDU and Social Democratic Party, or SPD, which is currently being led by the outgoing chancellor, Olaf Scholz, will begin within the next couple of days and should be wrapped up by Easter, Euronews reported.

The SPD finished third in the election and won 120 seats.

Radhika Desai, a professor in the department of political studies at the University of Manitoba in Canada and a visiting fellow at the London School of Economics and Political Science, said a "multilevel crisis" is looming for Germany, and that the negotiations to reach a coalition agreement will be "very hard" given the whirlwind of geopolitical shifts.

"This is a moment of great crisis at different levels," she said. "There is a crisis within Germany, domestically … Donald Trump's tariffs hang over Europe.

There is also the unresolved question of what is to happen with Ukraine, where there is no clear leadership being given by Europe.

"Merz has given himself two months to form a government. Clearly, this shows that he expects that there is going to be some very, very hard negotiation that he will have to do to arrive at that."

Germany is the largest economy in the European Union in spite of its GDP shrinking by 0.3 percent in 2023 and 0.2 percent in 2024.

The country has also been one of the biggest donors of financial and military aid to Ukraine since the Russia-Ukraine conflict broke out three years ago.

In a televised discussion on Sunday night, Merz said "the absolute priority will be to strengthen Europe as quick as possible", so that the block could achieve "real independence" from the United States, The Independent newspaper reported.

As Merz prepares to form a coalition with the center-left SPD, Wolfgang Roehr, a former German consul general in Shanghai who is currently an advisory professor at Tongji University, said a major agreement within the coalition on foreign policy issues, such as Ukraine, is likely in place, but that details are still unclear.

"Both parties, the CDU and SPD, have the same line on Ukraine. The CDU is perceived as being a little bit stronger, with Merz usually saying, 'Ukraine must win'. But how positive he would be? I don't know," he said. "And Merz is a transatlanticist. He might try as much as he can to keep up good relations with the US. How far that will go? We don't know what Trump may do tomorrow."

The rise of the Alternative for Germany, or AfD, party which finished second with 152 seats – nearly double its result at the last election in 2021 – could further complicate the situation, Roehr said.

"The center parties – the Union, the SPD, and the Greens – have more than 60 percent of the seats. What they will not have is a two-thirds majority, and it can become a problem in future months when they want to change the constitution, for example, to reform the debt brake to spend more money," he said.

Desai added that the coalition itself is not in a strong position with the CDU having recorded its second-worst general election result ever, while the SPD had its weakest result to date.

The debt brake is a constitutional requirement introduced in 2009 that limits the German federal government's annual borrowing to 0.35 percent of its GDP.

Reform of the debt brake could involve loosening fiscal rules in order to revive the economy – such as by unlocking investment in industry and funding business tax breaks – as well as to find room for additional defense spending.

Special funds for defense could be mobilized to get around the debt rule.

But both the AfD and the Left Party opposed military aid to Ukraine, Reuters reported.

The AfD will also keep the pressure on Merz to resolve Germany's immigration issues, the Politico website reported, and the sluggish economy – a situation that seems likely to persist, especially if Trump's trade agenda hits German exporters – could further destabilize the coalition if Merz fails to address some of pressing domestic concerns.

Roehr noted: "Foreign policy was not at all an issue in the electoral campaign, not even after the speech of US Vice-President JD Vance at the Munich Security Conference. People talked about it, but it was not part of the campaign. Migration, economies, pensions, climate change, those are the major issues."

Yet, on the economy, "strong disagreements" could be foreseen between the CDU and SPD, Roehr said.

"This reflects the usual divide between a more social-oriented party and a more conservative party, as seen in many Western countries … This will lead to strong disagreements and a need for compromise on economic and social issues," Roehr added.