The Council of Trent issued its decree on justification in 1547. It affirmed that grace is prior and unmerited, that nobody can be justified by their own works or by the law, and that faith is the beginning and root of justification. It then condemned the formula by faith alone as the Reformers used it, on the ground that justification involves the infusion of grace by which a person is genuinely made righteous, and that this righteousness is increased by good works performed in grace, which therefore genuinely merit an increase.
The disagreement is real but it is narrower than the polemics of either side suggested. Both hold that salvation originates in God's unmerited favour. Both expect a transformed life. The difference is whether the transformation is part of justification or its consequence, and whether the works done by a person already in grace can be said to merit anything.
In 1999 the Lutheran World Federation and the Catholic Church signed a Joint Declaration on the Doctrine of Justification, stating a common confession that sinners are justified by grace alone through faith in Christ's saving work and not because of any merit on their part, and declaring that the sixteenth-century condemnations do not apply to the teaching of the partner as set out in the document. The World Methodist Council associated itself in 2006, the Anglican Communion and the World Communion of Reformed Churches subsequently.
The declaration did not dissolve the difference. It stated that remaining differences of language, theological elaboration and emphasis are tolerable, which is a real achievement and not the same as agreement. Confessional Lutheran bodies outside the Federation rejected it, and Catholic and Reformed theologians continue to dispute whether the underlying accounts of grace can in fact be reconciled or were merely described in terms broad enough to accommodate both.