Merz charts a path back to growth – release the debt brake and spend on defence

“One of the tests of the cabinet will be whether ministers’ business cards contain a fax number.” So quipped a corporate leader to me on the day Friedrich Merz was not quite crowned and then crowned the 10th chancellor of postwar Germany.

- John Kampfner

The events in the Bundestag last week provided an embarrassing overture to a tenure that is already being written off by some and described by others as the last-chance saloon for democratic politics, with the far-right Alternative fiir Deutschland waiting in the wings.

Much of this alarmist talk belongs to Germans’ national sport of doing their country down. Neither the state finances nor the political system is as weak as the pessimists proclaim. Yet Merz knows he doesn’t have long to deliver on a difficult agenda: multiple crises around the world, satisfying public demand for tighter immigration controls and modernising an economy that is in a protracted slump.

The short-term task is to start delivering growth. The worst performer in the G7, Germany contracted in 2023 and flatlined in 2024. A tiny forecast rise for 2025 was recently revised down.

Some economists predict a modest return to growth sooner than had previously been forecast, thanks to an injection of €500bn for infrastructure and an almost blank cheque to increase defence spending that Merz cajoled through the outgoing parliament weeks before taking office.