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A year after taking office, Merz defends the government's performance, calling it satisfactory...
Germany realized long ago that the model that made it Europe’s industrial powerhouse was no longer viable in today’s conditions. For more than a decade, it combined three factors: cheap Russian energy that guaranteed competitive prices for industry, a production system integrated into global value chains, and a systematic focus on exports supported by a euro that was weaker than German productivity. This model presupposed geopolitical stability, secure access to resources, and open markets. Russia’s invasion of Ukraine cut off the supply of cheap energy; the rivalry between the United States and China politicized trade and technology; globalization, once a neutral infrastructure, became a terrain of strategic competition.
Everything is wrong, everything needs to be redone; but in which direction should we go? Frederich Merz has some ideas and he had no hesitation in showing them to the rest of the world. At the Munich Security Conference, he said that "freedom is no longer a given" and that Europe must "build its own agenda", combining economic and military security. He announced the intention to make the Bundeswehr "the strongest conventional army in Europe", arguing that "Germany must be able to defend itself and its allies with its own means". He then reached an operational agreement with Giorgia Meloni on industrial competitiveness and migration policy.
The program is extensive, but how will it be financed? A year after taking office, Merz defends the government’s performance, calling it “satisfactory.” But the Bundesbank’s assessment in its reports is harsher. The promise of an economic turnaround has yet to produce a noticeable change in the macroeconomic data: weak growth, uncertain external demand and energy costs still high compared to the period before 2022. Businesses are reporting caution in investment and concerns about bureaucracy and the lack of a skilled workforce. Merz himself created a problem by ruling out further easing of the debt curbs during the current legislative session, a choice in line with the CDU’s culture of stability but which limits the state’s ability to intervene with large-scale expansionary programs.
The German Chancellor tried to unblock the situation by traveling to China, bringing with her about thirty managers to attract Chinese investment to Germany and to provide German companies with broader and more predictable access to the Chinese market. This is what everyone wants, but the Germans need it more than anyone else, as the trade deficit with Beijing is approaching 90 billion euros, which, considering 250 billion euros in trade, is considerable, especially for an economy that relies heavily on manufacturing.
Merz met with President Xi Jinping and Premier Li Keqiang to rebalance a relationship that has become increasingly unequal in recent years. This is a difficult task, as China's industrial overcapacity, especially in electric vehicles and the green transition sectors, will not be reduced simply because the German auto industry, like the rest of Europe, is facing difficulties.
As with many leaders after they become chancellors, Merz has also refined his past stances on China. As opposition leader, he was among the most vocal in calling Beijing a systemic rival. But yesterday he spoke pragmatically and soothingly, saying there is “huge potential for growth.” These are phrases diplomats love, but in practice they are about as valid as “your son is intelligent but doesn’t work hard.” He let something slip, calling the trade imbalances with China “unhealthy.” He was referring to Beijing’s subsidies for its companies, which many German firms say are squeezing margins and jobs in Europe.
The message was generally carefully calibrated, because Germany cannot afford a face-to-face confrontation with the world's second-largest economy. Beijing responded as it prefers: with a concrete but limited gesture. The announcement of an order for up to 120 Airbus aircraft is a significant concession on both an industrial and symbolic level. It is worth billions, strengthens the European aeronautics industry and offers Merz an immediately understandable result; but it does not change the structural balance of the trade relationship, nor does it reduce the German deficit.
However, in foreign policy, where there is less to lose, Merz was more resolute. The chancellor called on Beijing to use its influence over Moscow and intervene in the flow of dual-use goods that could support the Russian military. He then reiterated that any reunification with Taiwan must take place peacefully. Will he stand by his stance or is he simply giving Merz a sign for his upcoming official visit to the White House in a few days? We will only find out by experiencing his agenda.
To avoid overreacting, Merz did not take questions from journalists during the visit. This decision caused discussion in the German media, given that both Angela Merkel and Olaf Scholz had often used press conferences in China to reiterate the value of press freedom. Different times, different economies./ Adapted by “Pamphlet” from “Linkiesta”
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