Following the collapse of Germany’s dysfunctional three-party coalition in November last year, then-conservative opposition leader Friedrich Merz vowed that he would transform the country from “a sleeping middle power” to a “leading” one should he become chancellor.
Judging by his first month in office, including a successful first White House meeting with US President Donald Trump on Thursday, the 69-year-old former corporate lawyer is well on track. The world once feared a stronger Germany, but now its allies, including the US, should welcome it.
Merz’s Oval Office visit was never going to achieve much of substance, but avoiding a dressing down, like the treatment meted out to Ukrainian President Volodymyr Zelenskiy and South African President Cyril Ramaphosa, was a victory of sorts. Merz and Trump seem to have developed a rapport, with the US president reserving his potshots for former German chancellor Angela Merkel rather than its current leader.
It helped that Trump’s hatchet man, US Vice President J.D. Vance, kept quiet this time. Trump also seemed more preoccupied by his bust-up with Elon Musk rather than Germany’s big trade surplus with the US. Merz for his part urged the US president to keep pressuring Russia to end the war in Ukraine — whether he would is unclear.
Since becoming chancellor in early last month, Merz has spent much of the time jetting around to reassure allies that the era of German dithering is over and to raise hopes that Europe’s biggest economy would finally provide credible, collaborative leadership. Financial markets certainly seem impressed: The DAX has gained 22 percent since the start of the year, trouncing the S&P500, while the euro has appreciated about 10 percent against the US dollar. Although Trump often seems intent on weakening the greenback, if the roles were reversed, he would surely call that winning.
Long reluctant to wield hard power and content to outsource its defense to the US, Germany’s “holiday from history” — as some political scientists have characterized the country’s hands-off approach and post-Cold War peace dividend — is over. Under Merz, Germany has promised to build Europe’s strongest conventional army, move toward meeting Trump’s demand that NATO members spend 5 percent of GDP on defense, assist Ukraine in developing long-range missiles to repel Russia’s invasion, and explore nuclear sharing with France and the US.
Caught between Russian aggression, a US that is tired of guaranteeing the continent’s security and China’s emergence as a systemic rival, Germany has had no choice but to cast aside its self-defeating fiscal restraint to bolster its sovereignty and resilience.
In March, Merz backed a reform of the so-called debt brake to effectively allow uncapped military spending and create a 500 billion euro (US$569.6 billion) fund to repair the nation’s decrepit infrastructure.
Germany can afford to splash out, because public debt is low by international standards, however voters were understandably aggrieved that Merz, once a fiscal hawk, waited until after the election to reveal his spending plans.
Last month, Merz initially failed to secure the requisite parliamentary votes to approve him as German chancellor, and his promise to limit irregular migration has already met legal setbacks. Nevertheless, in recent polls Merz’s conservative Christian Democratic Union/Christian Social Union alliance has once again pulled ahead of the far-right Alternative for Germany.
Perhaps because of difficulties at home, Merz seems to enjoy the global stage more, indeed so much that he made party colleague Johann Wadephul foreign minister (traditionally the junior party in the coalition holds that important ministry). He has also created a German National Security Council in the chancellery to better coordinate foreign and security policy, while promising that Germany would no longer abstain from key European decisions — the last government bickered constantly and struggled to find a common approach.
Merz’s first weeks have focused on international diplomacy, including repairing ties with Paris and Warsaw, but he has also tried to show Germany is open for business. This week the German Cabinet approved corporate tax breaks worth an estimated 46 billion euros to boost investment and competitiveness.
While the economy is expected to stagnate for a third year, the country’s medium-term prospects are beginning look a lot rosier. Higher domestic demand and a stronger euro might also help narrow Germany’s big trade surplus — something Trump should welcome.
Trump’s fiscal recklessness and assaults on the rule of law also offer Germany a golden opportunity to attract capital from the US as global investors look to rebalance their portfolios. Germany’s net government bond issuance is poised to balloon in coming years, and such inflows would make its own fiscal splurge more affordable.
The early signs are encouraging. This week, Apollo Global Management president Jim Zelter said the private capital giant could invest up to US$100 billion in Germany over the next decade — “a number that would be hard to match around the globe,” the Financial Times said.
Of course, there remain big gaps between Merz’s upbeat rhetoric and reality. Three decades of German military neglect cannot be rectified overnight: It needs to increase the size of the armed forces by about one-third, or by about 60,000 additional troops, to meet NATO’s updated defense requirements, and it is not clear how this would be achieved. Merz knows Europe cannot afford for the US to abandon NATO or Ukraine.
Germany also remains acutely vulnerable to whatever trade levies Trump decides on the EU: Merz’s push for zero tariffs on US-Europe trade has unsurprisingly so far fallen on deaf ears.
Merz should not push his luck: Berlin’s decision to float a 10 percent tax on digital platforms such as Alphabet Inc’s Google and Meta Platforms Inc risks causing further animus in Washington and possible retribution in the form of a tax on Germans’ US assets.
In other respects, he should be bolder, for example by reinstating military conscription and embracing common European borrowing, thereby broadening the supply of safe assets and boosting the euro as a viable reserve currency.
Nevertheless, Germany appears to have awoken from its long slumber, and its new chancellor is off to a strong start.
Chris Bryant is a Bloomberg Opinion columnist covering industrial companies in Europe. Previously, he was a reporter for the Financial Times. This column reflects the personal views of the author and does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.
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