Europe in 2025
Under its new government, Germany will move to the right
Getting the economy going will be the priority
Germany will enter 2025 preparing for a snap election brought about by the demise of its three-party coalition in November.
The surprise vote, to be held in late February, seven months earlier than expected, presents an opportunity for Europe’s largest economy to confront its manifest challenges, chief among them its flailing industrial model, and to respond to Donald Trump’s return.
Friedrich Merz, the candidate for chancellor from the opposition centre-right Christian Democrats (CDU) and their Bavarian allies, the Christian Social Union (CSU), looks likely to take the reins from Olaf Scholz, the Social Democrat (SPD) incumbent.
The 69-year-old Mr Merz (pictured), an irascible old-timer with a long history in the corporate world, will present himself as the best chance for Germany to lift itself from its economic funk.
Expect him to campaign to the right of Angela Merkel, the last CDU chancellor, with proposals to reform welfare, attract foreign investment and ease the flow of capital to German firms.
Hoping to arrest support for the hard-right Alternative for Germany (AfD), Mr Merz will also talk tough on the irregular immigration that has bedevilled Germany in recent years.
The question of how to revive Germany’s economy, which has barely grown in six years, will dominate the campaign and subsequent coalition negotiations.
(The new government will also have to negotiate a snap budget, as the country is likely to begin 2025 without one.)
Germany’s industrial giants are struggling with energy prices, high taxes, red tape and labour shortages, and the country’s huge car industry appears to have no answer to the rapid rise of Chinese EVs.
Germany’s specialised Mittelstand firms are highly exposed to the world’s protectionist turn, especially amid the threat of Trumpian tariffs.
The next chancellor’s role in shaping the EU’s response will be crucial.
One early test of the next government’s ambition could be the fate of Germany’s “debt brake”, a constitutional provision that sharply limits public borrowing.
As spending demands and legal constraints bite, even some in Mr Merz’s ranks want to loosen its shackles. It would require a two-thirds majority in the Bundestag.
But if that hurdle is overcome and Mr Merz’s would-be governing partners can win him over, a modified debt brake could create space for fresh public investment in infrastructure and defence, and allow Germany to boost aid to Ukraine—helpful if Mr Trump pulls the plug.
If not, there may be a second off-books fund to boost defence spending, after one Mr Scholz pushed through in 2022.
Diplomacy will present another test. If, perhaps under pressure from Mr Trump, Ukraine arrives at a settlement with Russia, Germany will face demands from allies to provide it with security guarantees and to lead the funding of reconstruction.
On EU matters important capitals, notably Brussels, Paris and Warsaw, will expect a Merz-led government to restore a German assertiveness lacking under Mr Scholz, even if it may not always be to their liking.
Mr Merz is unlikely, for example, to agree to a big joint-borrowing project to fund EU defence, despite his backing for Ukraine.
Hanging over all this will be Mr Merz’s search for coalition partners.
A victorious CDU/CSU would probably have to choose between governing with the SPD in a mushy left-right “grand coalition” of the sort often favoured by Mrs Merkel, or with the Greens, who are hated by many conservatives.
Yet so fragmented has German politics become that the conservatives may need the support of both.
Mr Scholz’s throuple of social democrats, greens and liberals began optimistically but was unable to marshall a coherent response when crisis struck.
That lesson will not be lost on Mr Merz.
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