The Guardian view on Germany under Merz: Europe’s powerhouse is still struggling | Editorial
In recent months, Europe has been grappling with economic uncertainty, particularly in Germany, as the optimism that followed Donald Trump’s return to the White House has faded. Last March, the financial markets in major European cities like Paris, Milan, and Berlin experienced a surge of hope following a historic agreement brokered by Friedrich Merz, Germany’s chancellor-elect. This deal aimed to loosen constitutional spending constraints in Germany, with the expectation that it would provide the necessary fiscal stimulus to revive an economy that had been stagnating for years. The proposed initiatives included significant investments in defense and infrastructure, totaling €500 billion, alongside a commitment to transition towards greener energy solutions. The overarching goal was to bolster Germany’s economy and prepare for a world where the United States might no longer be a reliable ally.
However, as Mr. Merz’s premiership progresses, the initial optimism has given way to renewed anxiety. Recent reports indicate that his economic advisers have downgraded growth forecasts for 2026 to below 1%, signaling a troubling trend of near-zero growth that has persisted for four years. This dismal outlook has contributed to a decline in business confidence, raising concerns about the effectiveness of the proposed fiscal measures. The challenges posed by Donald Trump’s trade wars and increasing competition from China continue to loom large over the European economic landscape, complicating the prospects for recovery. As Germany grapples with these formidable headwinds, questions arise about the viability of traditional economic policies in addressing contemporary challenges. The situation calls for innovative solutions that move beyond old orthodoxies to navigate the complexities of a rapidly changing global economy.
Donald Trump’s trade wars and Chinese competition constitute formidable headwinds. But old economic orthodoxies are not the answer
Last March, following angst-ridden months as Europe came to terms with Donald Trump’s return to the White House, financial markets in Paris, Milan and Berlin were gripped by a
surge
of optimism. The cause was a historic deal brokered by Friedrich Merz, then Germany’s chancellor-elect, which loosened constitutional spending constraints in the EU’s powerhouse nation. Here at last, it was hoped, was the fiscal kickstart required to end a prolonged period of economic stagnation, and mitigate geopolitical headwinds blowing from the US and China.
Six months into Mr Merz’s premiership, the angst is back and there are the first murmurings of rebellion. The chancellor’s plan included “whatever it takes” levels of defence spending, designed to prepare Germany for a changed era in which the US was no longer a dependable ally, and a huge €500bn investment in infrastructure and the green transition. But last week, the chancellor’s team of economic advisers
downgraded
growth forecasts for 2026 to below 1%. And ahead of what would constitute a fourth year of near-flatlining, business
confidence
has slumped.
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