Friedrich Merz, Germany’s Savior?

Friedrich Merz is projected to become Chancellor of Germany during a period of great economic and geopolitical uncertainty for Europe. As the leader of the Christian Democratic Union, Merz will take the helm with a very conservative, pro-capitalist approach to governance. In more general terms, the CDU, the leading centre-right party in Germany, is best known for combining free-market economics with social welfare provisions under the name “social market economy.” Under Chancellor Adenauer, Chancellor Kohl, and most recently, Chancellor Merkel, the CDU played a leading role in the development of modern Germany. Chancellor Merkel was much more of a centralist pragmatist than Merz, who called for a return to fiscal conservatism, economic liberalisation, and nationalism on which the CDU stands.

Merz’s policy for the German economy is one of deregulation and renewed incentives for private enterprise, to chiefly redress Germany through an upswing in its economy. He has been very critical of extensive bureaucracy due to its suppression of innovation and economic growth. His government is set to take steps toward the unification and simplification of the tax system and also toward reducing the level of corporate taxation so that Germany gains international competitiveness in Europe’s trade landscape. Furthermore, he has advocated for lowering energy taxes to alleviate the burden on both businesses and consumers amid ongoing energy market fluctuations. One of Merz’s key initiatives is a proposed €500 billion infrastructure investment program over ten years, signalling a departure from the CDU’s traditionally rigid fiscal policies. This investment is intended to modernise Germany’s transportation, digital, and energy infrastructure, addressing longstanding concerns about underinvestment in public goods. However, this initiative also raises questions about its compatibility with Germany’s constitutional “debt brake,” which limits government borrowing. Merz has also proposed energy taxes to be lowered to reduce pressure on companies and individuals while the energy markets are developing. One of the main initiatives Merz has proposed is a ten-year infrastructure investment worth 500 billion Euros. This marks a change from the previously restrained budgetary policy of the CDU, a measure that aims at bringing the country’s transportation systems, digital facilities, and energy industries up to date given the constant complaint that these goods needed more financing. Thus, this initiative begs the question of the compatibility with the provisions of the German constitution articulating the "debt brake" principle on public borrowing.

Merz’s approach to the European Union reflects a commitment to German sovereignty and economic discipline within the bloc. He opposes deeper political integration within the EU, rejecting the idea of a “United States of Europe” in favour of a looser economic and strategic alliance. His stance emphasizes national decision-making over collective EU governance, particularly in areas such as fiscal policy, energy, and migration. A strong advocate for fiscal responsibility, Merz has been critical of mutualized European debt initiatives, such as the EU’s COVID-19 recovery fund, arguing that such measures create long-term financial dependencies. He is expected to push for stricter budgetary discipline among EU member states, reinforcing Germany’s traditional role as a proponent of economic stability in Europe. His leadership may lead to renewed tensions with southern European economies, which favour a more flexible fiscal approach. Talking of security and defence, Merz is in favour of a ‘European army’ but calls for the national governments to remain the main actors in military policy. He has vowed to raise Germany’s defence budget, abandoning traditional CDU positions; to make defence spending exempt from ‘debt brake’, to maintain the military investment, and to close gaps in NATO’s eastern flank, in particular by delivering armaments to such areas. His European policy will probably strengthen cooperation with France and others but will oppose Brussels-based institutions’ effects on national decisions.

Germany under Merz also would have a more balanced relationship with the United States compared to the rest of the European Union. Merz is a staunch supporter of NATO and considers transatlantic security cooperation crucial, but he has also argued that Europe should cultivate greater strategic autonomy, especially from the US. His backing for higher defence spending echoes long-standing U.S. pleas for European allies to spend more on their own security rather than relying on it for military backing. Merz has lashed out at the economic policies of U.S. President Donald Trump, notably his approaches to trade that impact Europe. While still being devoted to a strong U.S. economy, it is plausible that he will try to negotiate less American-centred trades. His government may attempt to strengthen economic relations with other emerging countries such as China, but this might lead to a further weakening of Germany's relations with Europe and America. He is expected to shift Germany’s position on digital regulation and technology collaboration with the United States toward stronger data and cybersecurity policies. He has expressed worries about the dependence of Europe on US tech companies and backs European strategies for digital innovation to promote more autonomy in the domain. Merz’s planned economies have elements of classic economic whiggery with state spending on economic development. The tax revenue and regulation cuts defend business investment, though the outcome will rely on Germany’s ability to achieve a balance between investment and spending. His proposal to invest €500 billion in infrastructure is expected to improve Germany’s economy but is also likely to put strain on the country’s debt regulations.

In the context of Europe, Merz's leadership will most likely define a new version of Germany that is more self-assured and puts national concerns ahead of greater integration within the EU. This emphasis on disciplinary spending and nationalism may cause tension within the bloc, but it could also strengthen Germany's status as the European economic engine. In terms of global positioning, Merz’s Germany is expected to maintain close but strategically independent relations with the United States while looking for new realms of trade and security beyond the West, In essence, Merz's foreign policy stance suggests a coalition of self-sufficiency with international engagement. Under Merz, Germany is set to heal and modernise its economy, somewhat like Germany itself in the 1990s. However, the success of Merz’s government is contingent on whether his capitalist policies lead to Germany’s growth amidst the ongoing social and geopolitical turmoil in Europe. With these reforms planned, the world is watching Merz’s every footstep, and Europe should be ready for the storm that Merz is bringing with him.