Friedrich Merz, an unquestionably able 69-year-old Christian Democrat (CDU) politician who has never held government office, faces an array of challenges that would tax many seasoned prime ministers.
Germany’s prospective chancellor is starting gruelling negotiations to form a government with a recalcitrant Social Democratic Party (SPD) that slumped to its worst showing for 140 years in the 23 February election.
Recognised as understanding the minds and ambitions of business people, Merz needs to promote ideas such as corporate tax cuts for renewing Germany’s economic model that he knows may be blocked by SPD ideology.
He has to tread a political and legal tightrope to make good campaign promises to curtail the central issue of illegal immigration – or otherwise risk a further backlash from voters from both Left and Right.
On the international front, Merz confronts unfavourable influences from the US, Russia and China, transformed in different ways and at varied speeds from friends into unreliable and adversarial forces. Prospective tariffs on European Union exports by the administration of Donald Trump are just one possible adverse trans-Atlantic factor.
Unless he quickly brings purpose and achievement to another conservative-SPD ‘grand coalition’ – the fourth in 20 years – Merz may face fresh elections in another two to three years. That was the taunt of Alice Weidel, leader of the far-Right anti euro, anti-immigration Alternative for Germany (AfD), which finished second on 23 February. The oldest chancellor since Konrad Adenauer in 1949 could become post-war Germany’s shortest-tenured leader.
German political polarisation
The AfD has benefitted from a string of murderous urban attacks on individuals by immigrants in the last two years. It represents the most dramatic sign of growing German political polarisation. The AfD’s ascent was coupled with a rise to 8.8% by the far-Left Linke rooted in the old East German communist party.
Both parties, with marked pro-Russian sympathies and strong showing in the eastern part of the Germany unified in 1990, together have a one-third minority of Bundestag seats. They can thus block constitutional changes such as the mooted reform of the ‘debt brake’ that limits government borrowing.
The SPD, debilitated and mutinous after 12 years of coalition with previous CDU Chancellor Angela Merkel and then by three ineffective years as the main government party, is already raising its price to enter the Merz administration. ‘One cannot force the SPD into a coalition,’ said Matthias Miersch, SPD general secretary.
Merz on 24 February appeared to give some credence to a possible ‘fast track’ reform of the debt brake while the current parliament is still sitting up to 24 March. The Bundestag could decide by a simple majority to overcome the debt brake by declaring a case of emergency or unusual economic hardship. Merz has appeared to show flexibility on that issue for reasons such as the US administration’s call for a big increase in European military spending.
Economic issues as main CDU/CSU goals
Assuming Merz can fulfil his goal of forming a government by Easter, the CDU/CSU will try to push through economic issues as their main goals. These focus on spurring growth through investment credits and cuts in bureaucracy, unnecessary social spending and state intervention. However, financing is unclear, given that the CDU/CSU do not want to increase taxes.
A crucial issue will be curbing illegal migration by maintaining border closures and refusing to accept migrants who under the EU’s ‘Dublin accord’ are bound by neighbouring countries’ asylum and immigration regulations. The SPD has up to now opposed this approach, claiming that EU legislation prohibits rejection of asylum applicants.
The CDU/CSU will try to reduce social transfer spending to immigrants and other job-seekers, citing statistics showing that, of nearly 2.8m recipients, over 1.8m are able to work at a time of 700,000 vacancies across the economy.
On military spending, Merz must carry out the Herculean task of increasing outlays at a time of scant resources. Putting the economy back on its feet while getting more people into work forms a central part of his strategy to increase tax receipts. If business confidence returns quickly, that could work out for the best. If it doesn’t, then Merz faces a negative spiral.
David Marsh is Chairman of OMFIF. Andreas Meyer-Schwickerath is a Berlin-based OMFIF adviser.
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