On May 6, 2025, Friedrich Merz was sworn in as Chancellor of Germany. His improbable rise to power featured a highly contested election campaign with a stunning first-round upset. As the head of a violence-plagued and polarized coalition government, this coalition is made up of the Christian Democratic Union (CDU), the Christian Social Union (CSU), and the Social Democratic Party (SPD). This coalition’s goal is to accelerate equitable economic recovery from the COVID-19 pandemic by adopting large-scale, ambitious reforms and investments.
Despite her relative lack of control, Merz’s administration unveiled a historic fiscal package that bent long-established debt rules, allowing for a historic bump in defense spending. Of note, the coalition has set aside 500 billion euros (about $567 billion) for a climate infrastructure investment fund. Broadly, these measures are intended to pull a receding economy out of its rut. After all, the outgoing administration left us with negative growth rates in both 2023 and 2024.
The road to Merz’s ascendance was not without its challenges. In a stunning first-round vote, he lost the Chancellorship. This is an extraordinary development in modern German political history. He was able to recapture enough support and won approval to successfully be re-elected Chancellor in a second round later the same day.
Merz swearing an oath of office at the Bundestag in Berlin. This act set his official stamp and was symbolic of the lofty hopes placed upon his government. During his election campaign, he promised sweeping reforms and historic investments to modernize Germany’s economy. He unapologetically called out the policies and rhymes of the past administration. He was an unwavering proponent of radical innovation as the only way forward.
Germany’s economic short-termism needs to be replaced with long-term thinking urgently, if it is to pull itself out of its quagmire. As we have heard from authorities, the negative annual gross domestic product growth for two years in a row is unprecedented. The new projections offer no sign of relief any time soon with Merz at the helm.
The coalition’s fiscal package is seen as a done deal, with analysts writing it will not be changed.
“I think that the 500bn euro infrastructure package will not be touched and is a done deal,” – Carsten Brzeski.
Possible conflicts on the budget surface as Merz’s cabinet enters its own uncharted waters. The message Some observers think that his first failure was a intentional warning shot from MPs. More than anything, they wanted to convey that unity and trust are key – vital, really – in keeping the coalition together.
Otto Fricke emphasized this notion, stating, “The problem really here is at the end, it’s about the most important issue in politics: trust.” He continued that there needs to be trust among members of the cabinet and among members of parliament to guarantee rapid legislative action.
Further complicating the picture there is some reason for cautious optimism when it comes to Merz’s prospects for realizing his ambitious policy agenda. Some experts express confidence in his government.
“I have few doubts about that the new government will be able to implement its big policy goals,” – [Name Not Specified].
Confusion still lingers over additional, larger measures suggested in the fiscal package. Carsten Brzeski noted that “all other measures, like the faster write-offs for investments or the corporate tax cuts in 2028 have become even more uncertain than before.” Such uncertainty may be enough to stop action on other reforms equally important to economic recovery and equally as urgent.
Franziska Palmas expressed her belief that the proposed infrastructure investment would significantly boost GDP growth and help Germany escape its stagnation after six years of economic troubles.
“We think that will give a significant boost to GDP growth and get Germany out of stagnation after six years,” – Franziska Palmas.
Friedrich Merz enters his new role as Chancellor on a crest of responsibilities. He now has the task of implementing his promises through a diverse coalition of actors who generally have other priorities. The success or failure of his government will likely hinge on its ability to foster trust among its members and enact meaningful reforms quickly.
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