Germany Under Merz: Facing Economic Struggles and Political Challenges
In March, Chancellor Merz brokered a deal to loosen EU spending rules aimed at spurring Germany’s economy and addressing geopolitical challenges. The plan included substantial defence spending alongside approximately €500 billion earmarked for infrastructure and green-transition investments.
Despite these efforts, growth forecasts for 2026 were downgraded to below 1% by Merz’s economic advisers, with business confidence declining ahead of a fourth consecutive year of economic stagnation. The lifting of the debt brake is not seen as an immediate fix, as the full impact on transport and other investments is expected to take time to materialize.
Public sentiment toward Merz remains weak; fewer than one in five Germans support his re-election, while the far-right AfD leads in polls amid widespread disillusionment with mainstream politics. Germany is also grappling with significant external headwinds, including the ongoing war in Ukraine, competition from China, and trade conflicts initiated by former US President Trump, all of which undermine Germany’s traditional export-led economic model.
Critics have called for reining in social spending to enhance competitiveness, a move that risks sparking further pushback within the coalition government led by the CDU/CSU and SPD, particularly over pension reforms. The article argues that Germany must revive its social model and accelerate investment strategies in order to adapt to a multipolar world, avoiding failed orthodoxies that risk empowering the far right.
Merz’s background, including his service on BlackRock’s supervisory board, reinforces his image as a fiscal hawk, which remains pertinent to ongoing policy debates. As a Guardian editorial perspective, the piece concludes that Germany, as Europe’s economic powerhouse, cannot afford a return to past policies and must proactively address these multifaceted challenges.
