The Guardian view on Germany under Merz: Europe’s powerhouse is still struggling | Editorial
In recent months, Europe has been grappling with a mix of optimism and anxiety as it navigates the complexities of Donald Trump’s trade wars and the competitive landscape posed by China. The initial surge of hope came last March when Friedrich Merz, Germany’s chancellor-elect, brokered a significant deal aimed at loosening the country’s constitutional spending constraints. This deal was seen as a potential turning point for Germany, promising a fiscal stimulus that could invigorate the economy after years of stagnation and help counterbalance the geopolitical challenges emanating from both the US and China. The ambitious plan included a commitment to “whatever it takes” levels of defense spending and a massive €500 billion investment in infrastructure and green initiatives, reflecting a shift in Germany’s economic strategy to adapt to a world where US support can no longer be taken for granted.
However, just six months into Merz’s leadership, the initial optimism is giving way to renewed concerns and signs of discontent. Recent downgrades in growth forecasts for 2026 to below 1% have raised alarm bells, indicating that the anticipated economic revival may be more elusive than hoped. Business confidence has also taken a hit, with many companies expressing uncertainty about the future. This situation underscores a broader dilemma: while traditional economic strategies may no longer suffice in addressing the challenges posed by external pressures, the solutions remain unclear. The article highlights the pressing need for innovative approaches to economic policy that can effectively respond to the realities of a changing global landscape, rather than relying solely on outdated economic orthodoxies. As Europe stands at this crossroads, the path forward will require a delicate balance of strategic investment, adaptive policy, and a readiness to confront the uncertainties that lie ahead.
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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