Germany is getting ready for a new leader, probably Friedrich Merz, head of the conservative Christian Democratic Union – but Europe and the world will have to wait. Following the ignominious collapse of Olaf Scholz’s bickering three-party coalition on 6 November, Merz and Markus Söder, leader of the CDU’s Bavarian Christian Social (CSU) sister party, have mounted a joint offensive to force a quick election. This will not take place before late January, at the earliest.
A January election – on a speedier timetable than proposed by Scholz – could help end Europe’s paralysis over increasing military aid to Ukraine, revitalising the economy and assembling a robust response to the challenge of President-elect Donald Trump.
Scholz coupled his 6 November sacking of liberal Free Democrat (FDP) Christian Lindner as finance minister with a suggestion that parliament be dissolved in February, with elections in March. Both Merz and Söder say that is far too late to deal with Germany’s pressing economic and social challenges. Scholz wants a compromise with the opposition parties to steer the 2025 budget through the Bundestag, where his coalition has been struggling to plug a gap of at least €12bn-€15bn.
Scholz has appointed as finance minister Jörg Kukies, his confidant and economic adviser, who has been state secretary in the chancellor’s office for three years. Before parliament is dissolved, Scholz wishes to enact measures to support corporate investments through tax credits or subsidies, carry out further reform to the pension system and stock up the defence budget, which is still running below its promised 2% of gross domestic product.
Merz and Söder see a budgetary compromise as part of a bargain under which a Bundestag vote of confidence is staged far sooner, allowing an earlier election by the end of January instead of end of March.
FDP position presents a sizeable complication
Merz, who turns 70 next year, has seen the CDU/CSU parties’ popularity rise lately to beyond the 30% level. But he would still have to rely on smaller parties to form a coalition after the eventual election, which could require weeks or months of post-poll bargaining.
Depending on whether smaller parties in the election manage to surmount the 5% voting hurdle to gain parliamentary seats, Merz may be able to govern by relying on support from deputies from the CDU/CSU and the Greens, with whom he has been strengthening links in recent years. Assuming that it surmounts the 5% threshold, the FDP would want to be rewarded by membership of a Merz-led coalition, even though – after the acrimonious break-up of the Scholz coalition – a Green-FDP alliance under Merz would be anathema to many parts of both smaller parties.
Merz would be welcomed by Britain, France and other Nato partners as showing a much more energetic support for Ukraine – including deploying air-launched Taurus missiles – than the diffident Scholz, who is still influenced by Russia-supporting pacifist-leaning sections of his Social Democratic party.
Merz would be likely to reform the constitutional ‘debt brake’, which is seen by left-wing parties as well as by large swaths of foreign economic opinion as holding back much-needed German investment in infrastructure. Alongside a cut in corporate taxes, subsidies and social handouts, a change in the budgetary rules to allow more direct investment in productive infrastructure would be part of Merz’s fiscal policies.
The Trump challenge
As to the prospective new incumbent of the White House, one aspect of Merz’s character would find resonance with Trump: the CDU leader’s adversarial relationship with former Chancellor Angela Merkel, whom Trump heartily disliked.
A fluent English speaker well at home in transatlantic circles, Merz might get on somewhat better with Trump than either Scholz or Merkel. Merz forged a friendly relationship with Richard Grenell, former US ambassador to Berlin, a close Trump foreign policy adviser who has been tipped as a possible future secretary of state.
However, his links with BlackRock – where he was previously head of the asset manager’s business in Germany – might count against him. In 2020 Larry Fink, the BlackRock chief, praised Joe Biden, in contrast to his predecessor, as a ‘voice of reason’, sparking irritation from Trump, which is unlikely to have dissipated.
David Marsh is Chairman and Chief Executive of OMFIF. Andreas Meyer-Schwickerath is a Berlin-based OMFIF adviser.
Image source: Nato