The UK and Germany will be trying to pull off a complex balancing act over defence, finance and economics at a landmark meeting on 17 July. German leader Friedrich Merz flies to London for his first visit since becoming chancellor in May after his narrow general election win in February. His host is Prime Minister Keir Starmer, a year into office with a large majority, but facing, like Merz, a painful combination of domestic economic weakness and internal governmental ructions.
Anglo-German relations have seen a marked improvement after a spate of poorly performing Conservative administrations in London. Labour leader Starmer and Christian Democrat Merz have forged a strong personal bond over the last two months, particularly during an overnight train journey to Kyiv with French President Emmanuel Macron in the first days of Merz’s chancellorship.
Foreign investors’ sentiment towards Germany has been buoyed by promised increases in defence and infrastructure spending since the relaxation of Berlin’s much vilified constitutional ‘debt brake’ ahead of the formation of Merz’s conservative-led coalition government. However, after six years in the doldrums, the German economy is still close to stagnation in view of lengthy lags before budget increases spill over into wider stimulus.
Trump’s zig-zagging tariff policies
Both leaders are beset by uncertainty over President Donald Trump’s zig-zagging tariff policies. A separate UK-US trade deal outlined on 8 May has given Britain a largely unexpected edge compared with the European Union in trade treatment by the White House.
Understanding between Merz and Starmer has been strengthened by their common background in the legal profession as well as by their shared tone of unruffled pragmatism in handling the US president. Macron, previously a recipient of Trump favours, has been downgraded, partly a result of White House realisation that the French leader will no longer hold office after the April 2027 presidential election.
A heated argument earlier this summer between Trump and Macron over immigration into France, during a transatlantic phone call including Merz and Starmer, has been a factor in the cooling of relations. Somewhat uneasily in view of Trump’s notorious volatility, Merz now realises that the president sees him as a pivotal figure in the US-European relationship, a position that can bring disadvantage as well as benefit.
In contrast to the lack of European credibility of former Downing Street incumbents – especially Boris Johnson and Liz Truss – Starmer has emerged as a pivotal European player, including in policies over Russia’s war with Ukraine. As part of a general build-up of defence co-operation, Britain is keen to secure access to European funding for joint armaments development.
Following an agreement on defence last October under Merz’s predecessor Olaf Scholz, the British and German leaders are expected to sign a ‘friendship treaty’ focused on foreign and security co-operation. The treaty will include measures aimed at boosting economic growth and encouraging stronger people-to-people contacts between the two countries.
Franco-British nuclear weapons agreement
The Starmer-Merz talks will be heavily influenced by the far-reaching nuclear weapons agreement between the UK and France unveiled by Starmer and Macron at the Northwood airbase north of London last week. To ‘deepen their nuclear cooperation and coordination’, the two countries agreed to set up a joint Nuclear Steering Group ‘to provide political direction’. One important issue is the extent to which the two sides may decide to coordinate action on nuclear targeting, as well as in developing programmes for joint future military systems.
Merz is seeking to clarify the limits of possible extension of the French nuclear deterrent to Germany, a possibility that Berlin regards with some scepticism. The issue is not new: in the 1980s, President François Mitterrand in talks with Chancellor Helmut Kohl made clear his reluctance to engage French nuclear forces in defence of the then West Germany in the event of a Soviet invasion. Mitterrand voiced French anxiety about seeing its key cities annihilated if it retaliated against Soviet targets. And in terms of so-called ‘battlefield’ weapons, ‘French tactical nuclear missiles would not fly very far. They would land in Germany. Should I, to save Germany, destroy Hamburg and then expect gratitude from the Germans?’
Merz has expressed interest in extending defence co-operation, including over nuclear armaments, with France and Britain as a way of reinforcing Europe’s autonomous defence efforts without overly downplaying the fundamental linkages with the US through Nato.
Shortly after taking office two months ago, Merz initiated a major climbdown in nuclear bargaining with France by giving up Germany’s long stated antipathy to civil nuclear development in Europe – a policy that had engaged considerable hostility from French officials normally well-disposed to Berlin.
However, there are limitations to Merz’s ‘olive branch’ policy towards Macron. In view of dramatically different German and French public sector borrowing profiles, Germany is highly unlikely to accede to French wishes for a general relaxation of European debt rules, even as Berlin ramps up government borrowing for defence and infrastructure. Additionally, Merz is unlikely to give up opposition to extending the Next Generation EU funding programme beyond the 2026 deadline.
Lack of concrete progress on economy
Merz’s progress as a relatively sure-footed German chancellor on the international stage has stood in contrast with lack of concrete progress in revitalising the lacklustre economy. Germany sees Britain’s departure from the EU as generally negative for EU economic development. Both sides back measures to deepen bilateral financial and economic links in areas like climate change, transport infrastructure and energy security.
However, both Merz and Starmer have to confront similar domestic political fractiousness – despite their highly disparate majorities. Thanks to the British voting system, the Labour party has an effective working majority of 166 votes in the House of Commons and yet Starmer suffered a damaging backbench rebellion on welfare cuts in July. This has lowered UK budgetary and general growth prospects.
In a new and still unsettled coalition with the Social Democratic Party (SPD), with a majority of only 12 votes in the Bundestag, Merz has been frustrated by the SPD’s opposition to cuts in social policy that he favours to prevent an undue rise in the German budget defect. Last week, he was weakened by a coalition revolt over the nomination of an allegedly left-leaning judge to the German constitutional court.
As they seek to strike out on new paths over European relations, both the UK and German leaders realise that, with regard to their domestic political hold, they may both be living on borrowed time.
David Marsh is Chairman of OMFIF.
Image credit: Number 10
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