After the Elections, A Sense of Urgency in Berlin

Alexander Privitera

AGI Non-Resident Senior Fellow

Alexander Privitera a Geoeconomics Non-Resident Senior Fellow at AGI. He is a columnist at BRINK news and professor at Marconi University. He was previously Senior Policy Advisor at the European Banking Federation and was the head of European affairs at Commerzbank AG. He focuses primarily on Germany’s European policies and their impact on relations between the United States and Europe. Previously, Mr. Privitera was the Washington-based correspondent for the leading German news channel, N24. As a journalist, over the past two decades he has been posted to Berlin, Bonn, Brussels, and Rome. Mr. Privitera was born in Rome, Italy, and holds a degree in Political Science (International Relations and Economics) from La Sapienza University in Rome.

The leader of the German Christian Democrats (CDU), Friedrich Merz, has hit the ground running. International developments, in particular the impact of the recent rapprochement between U.S. President Donald Trump and the Russian autocrat Vladimir Putin have created a sense of urgency in Berlin that is deeply foreign to German political dynamics. Uncharacteristically for the leader of a major German party, and despite an overall disappointing showing, Merz will forgo a granular analysis of the election results. Even the customary cautious approach to the upcoming search for a coalition partner has been scrapped. There is an imperative to move fast, something perhaps not seen since the fall of the Berlin Wall. Across the political aisle, Merz’ main political counterpart—and only possible ally—the Social Democrats (SPD), are equally in a hurry. Despite the disastrous losses sustained at the polls, the SPD will have no time to lick the wounds inflicted by voters. Instead, Social Democrats are engaging Merz and the CDU/CSU in talks aimed at speeding up the formation of a new government. By Easter, talks could be wrapped up, at least according to Merz. Another novelty is represented by the fact that the new government will likely not be guided by a painstakingly detailed coalition contract. This time, a few pages filled with a list of objectives and principles will have to do. Germany suddenly appears more willing to question some old habits.

Importantly, it is not only a question of style and method but also of goals. The main aim of the new government is to preserve the Federal Republic from being taking over by the Alternative for Germany (AfD), the right-wing populist party, in four years, when the new legislative term is over. To do so, Merz will have to act boldly, both internationally as well as domestically.

Merz realizes that Germany can no longer rely on the United States to provide unconditional support to Berlin and its European neighbors. The Trump administration is inadvertently pushing Germany toward Paris and its ideas for European strategic autonomy. The Atlanticist Merz has become Gaullist almost overnight. With his behavior, the U.S. president has thrown embattled French President Emmanuel Macron a political lifeline. In fact, Macron and Merz are converging toward the goal of relaunching the moribund Franco-German alliance and supporting European efforts to boost common defense capabilities. A few days after his victory at the polls, Merz huddled with Macron for a multi-hour brainstorming session at the Elysee Palace in Paris. According to Merz, it went very well. To make sure all this frantic activity produces results, Berlin is proving it is willing to give up some of its traditional caveats, such as its pathological obsession with fiscal prudence, both at the European level as well as domestically. German defense should be shielded from cumbersome domestic and European fiscal rules. According to Merz and the SPD, all expenses in excess of 1 percent of GDP should not be constrained by the domestic constitutional debt brake, the famous Schuldenbremse. Even in Brussels, German representatives are now suddenly insisting the new EU fiscal rules are still overly restrictive. Berlin is discovering it is no longer a frugal country, as it abandons twenty years of austerity-driven orthodoxy.

This is a tectonic shift that is feeding a surprisingly bullish MEGA (Make Europe Great Again) narrative among investors who feel encouraged by the fact that Christian Democrats and Social Democrats are giving up some of their most cherished, hyper-cautious habits.

To avoid political and legal roadblocks for such a bold plan, the current parliament will be asked to vote on amending the debt brake. Various additional European financial tools are being discussed by the commission of Ursula von der Leyen in Brussels, from launching a 150-billion-euro debt financed fund to repurposing unspent funds. 650 billion additional euros could be mobilized by amending fiscal rules, as suggested by Berlin. Merz understands that Europe is under threat. Small, incremental steps, à la Merkel, this time simply will not do. Instead, he has embraced the “whatever it takes” motto of the former president of the European Central Bank Mario Draghi. This is a tectonic shift that is feeding a surprisingly bullish MEGA (Make Europe Great Again) narrative among investors who feel encouraged by the fact that Christian Democrats and Social Democrats are giving up some of their most cherished, hyper-cautious habits.

However, the bolder Merz acts, the greater the scope for political missteps. Known to be at times impulsive, tactical traps can always lurk behind the next corner. One question is whether Merz will manage to muster the constitutional majority he needs in parliament for his plans. The window is small. Tactfulness is of the essence. In fact, unless the outgoing parliament votes for the constitutional changes Merz is pushing, his plans will disintegrate in the new one, where the opposition parties formed by the AfD and Die Linke have a blocking minority. The other question is linked to the domestic policy mix needed to spend the 500 billion euro he and the SPD intend to invest in modernizing Germany’s infrastructure. As always, the devil will be in the details. Moreover, it is still unclear how traditional ordoliberal recipes, namely cutting red tape and reducing taxes, on which Merz campaigned, fit into this new narrative.

Also, and importantly, does Merz still hope Germany can once again become the Exportweltmeister, the export champion of old days, all focused on conquering new non-European markets for its manufacturing products, or is he embracing a more proactive role for the government to make the economy much more reliant on the more than 450 million consumers of the EU?

In other words, will Merz fully embrace and push the recommendations made in the Draghi and Letta reports, all geared toward much greater economic integration of the EU bloc? Or will he primarily focus on Germany first policies counting on some positive spillover effects on its partners? The to-do list the new chancellor is facing is indeed of historic proportions, especially because Europe needs Merz to truly act as a European chancellor, something German leaders since Helmut Kohl have increasingly forgotten how to do.