Trump administration<\/a> formally ended its military assistance. He worked out a deal with the American president whereby Berlin and other European countries would purchase Patriot missile systems from Washington and send them to Kyiv. In July, NATO Secretary-General Mark Rutte praised Germany\u2019s leadership and resolve to ensure Europe\u2019s shared security.<\/p>\nDEVIL IN THE DETAILS<\/p>\n
Such high marks, however, remain elusive at home. Before entering the chancellery, Merz knew that the efforts he had to make to address security demands and domestic economic challenges could conflict and risked prompting a populist backlash to his agenda. A majority of Germans support increased military spending financed through debt. But many would also like to see the government make debt-financed investments in other priorities, such as industry, pensions, and education.<\/p>\n
Germany\u2019s industrial growth has been stagnating since 2019. The German Council of Economic Experts has estimated that the country\u2019s economy will grow by a dismal 0.2 percent in 2025 and 0.6 percent in 2026. Europe\u2019s economic powerhouse is clearly underperforming in comparison with its G-7 peers. Germany\u2019s export-oriented market has also suffered <\/strong>from an influx of inexpensive, state-subsidized high-tech goods from China, which threatens the German auto industry and its millions of jobs. A lack of domestic investment since the adoption of the debt brake in 2009, coupled with Washington\u2019s new tariff regime and Chinese overcapacity, has rendered Germany\u2019s economic model defunct.<\/p>\nNow, with the reform of the debt brake, Merz\u2019s grand coalition has access to sufficient budgetary resources to both increase defense spending and make economic reforms\u2014a position previous governments have not enjoyed. Historically, Germans have opposed deficit spending. Merz\u2019s government is therefore pressed to better justify this change in policy and put its unprecedented additional funds to good use instead of wasting them. Merz is trying to implement an economic reform plan he calls \u201cAgenda 2030,\u201d which includes tax cuts and deregulation as well as some reductions in social welfare benefits. This plan alone, however, has thus far proved inadequate for the scale of Germany\u2019s economic problems. It addresses problems with traditional economic instruments instead of focusing on China\u2019s challenge to German and European industry. In addition, infighting <\/strong>within the coalition over how to spend the 500 billion euro infrastructure fund has raised concerns that coalition members will use deficit spending as a Band-Aid on legacy problems and as a way to service their voter bases rather than create economic opportunities.<\/p>\n Merz has been unable to persuade voters that better days lie ahead.<\/p><\/blockquote>\n
Failure to deliver has helped the opposition AfD thrive. In 2021, during Merz\u2019s campaign for party leader, he vowed to cut the AfD\u2019s support in half. Today, the AfD enjoys record-high support: a December Forsa Institute poll that asked Germans which party they would vote for showed the AfD above Merz\u2019s conservative camp. Although Germany\u2019s far right supports more defense spending in principle, it opposes financing it through debt and has attacked Merz\u2019s government for relaxing the debt brake. The AfD\u2019s views on defense spending are deeply rooted in a nationalistic conception of German military power outside of constraining institutions such as the EU and NATO.<\/p>\n
Putting money on the table for defense has helped Merz manage his relationship with Trump, but members of the U.S. MAGA movement, such as <\/strong>Vice President <\/strong>JD Vance and Representative Anna Paulina Luna, a Republican from Florida, have found common cause with the AfD and are encouraging closer cooperation. This poses a real threat to Merz, who prides himself as a transatlanticist and is trying to keep the postwar German conservative movement\u2019s center of gravity intact against the extremist AfD. Trump\u2019s new National Security Strategy, which officially embraces nationalist conservative parties and even seeks to instigate political change in European countries like Germany, is a further blow to Merz\u2019s efforts.<\/p>\nIn the 1980s, Franz Josef Strauss, the legendary chair of the Christian Social Union (the Christian Democrats\u2019 sister party in Bavaria), warned <\/strong>that far-right parties must not be permitted to become the flank of mainstream conservatism. The Christian Social Union should serve as the movement\u2019s outer band. <\/strong>Germany\u2019s political spectrum has since changed, and the AfD is firmly in place as a particularly radical far-right party in Europe. This past May, Germany\u2019s Federal Office for the Protection of the Constitution deemed the party extremist. And yet it has become the most successful far-right party in Germany\u2019s history since World War II.<\/p>\nGROWING PAINS<\/p>\n
Merz faces a predicament. The dangers of U.S. retrenchment and Russian aggression require increased defense spending and international shuttle diplomacy. The chancellor understands the stakes, and he has tried to make the case that foreign policy and domestic prosperity are interlinked. But as Helmut Kohl, Germany\u2019s chancellor during German reunification, experienced, foreign policy prowess does not guarantee electoral success.<\/p>\n
After his first hundred days in office, Merz had become even more unpopular than his predecessor Scholz, who was the first German chancellor in decades to serve a single term. According to a Forsa poll from early December, 76 percent of Germans are dissatisfied with Merz\u2019s performance as chancellor.<\/p>\n
Merz may also become the victim of an internal power struggle. Many conservatives are grumbling about dismantling the debt brake. A younger cohort desires reform of the pension system, which the Social Democrats oppose. Moreover, some in Merz\u2019s caucus are not wedded to sustaining the firewall against the AfD and envision cooperation with the far-right party, an idea Merz absolutely rejects.<\/p>\n
Despite the conflicting priorities of the center right and the center left, Merz\u2019s coalition is managing to hold together because another snap federal election could bring the AfD closer to power. Even without a snap vote, however, the grand coalition will face a test in German state elections next year. The AfD enjoys solid support across the country and is polling ahead by double digits in some former East German states. If the AfD wins big in the next federal election, centrist coalition building will become even more difficult. Merz\u2019s tenure as well as Germany\u2019s leadership role in Europe could be short-lived.<\/p>\n
EVERYTHING IN MODERATION<\/p>\n
Undertaking challenging reforms is nothing new for Germany<\/a>, and it has generally made the country stronger. Forging East and West Germany into one country after the fall of the Berlin Wall brought economic hardship and fostered resentment among former East Germans, who felt like second-class citizens. Anti-immigrant sentiment dogged Germany in the 1990s, requiring <\/strong>policies for integration. At the beginning of the twenty-first century, Chancellor Gerhard Schr\u00f6der\u2019s Agenda 2010 tackled loosening the country\u2019s tight labor market and paved a path of economic reform.<\/p>\nMerz must now deliver on his promise for renewal with his Agenda 2030. With more than a trillion euros committed to defense and infrastructure projects over the next four years, Merz has the fiscal means to reboot Germany\u2019s economy and maintain its political center. Germany\u2019s export-led economic model needs to be refashioned to stimulate domestic demand in Germany and Europe. More investments must be made in the defense industrial base to create jobs to replace the ones that Germany\u2019s traditional manufacturers are currently losing because of Chinese exports. The true scope of the Chinese economic threat is only now becoming clear to German leaders.<\/p>\n
Failure to deliver has helped the AfD thrive.<\/p><\/blockquote>\n
Germany is pro\u2013free trade by default, but it must better coordinate its industrial policy with the rest of the EU to help insulate against the worst effects of U.S. tariffs and Chinese overcapacity by seeking new trading partners and building competitive European producers. And with moribund growth and an aging population, Berlin cannot afford to prop up the country\u2019s current levels of social spending. For Germany to remain economically competitive, it must raise its retirement age <\/strong>to alleviate budgetary pressures. Investment in innovation and future technologies cannot be given short shrift compared with social spending.<\/p>\nSuch reforms will not magically make the AfD disappear. In fact, they might make the party stronger in the short term. Like other established Western democracies, Germany now has a far-right party embedded in its political system, chipping away at the mainstream parties. But Merz and his coalition can diminish the AfD\u2019s legitimacy by showing voters that providing for European security and investing in Germany\u2019s defense will also trigger a new era of economic growth and competitiveness. To handle the transatlantic relationship with Trump, deter Russian aggression, address economic pressure from China, and ease worries at home, Germany needs Merz\u2019s centrism, not the AfD\u2019s extremism.<\/p>\n
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