30 days of Merz, or 30 days of nothing
After thirty days under Chancellor Friedrich Merz, the contours of his government are becoming clearer, even if the results are only visible under a magnifying glass.
From the point of view of economic policy, the diagnosis is correct, but the treatment will make the disease worse.
Those who remember the battles in the Bundestag between then Chancellor Gerhard Schröder (SPD) and his fiery rival, opposition leader Friedrich Merz, remember a man who once shrouded his rhetoric in the cloak of classical liberalism.
Back then, Merz championed free enterprise where the state was intrusive, called for tax cuts to ease the burden on the middle class, and called for deregulation to stimulate growth. If the “ Milei chainsaw ” had existed in his day, Merz would have wielded it with pride.
But those happy days of opposition are long gone. Today the spirit of the old CDU-SPD “grand coalition” has returned, with Merz looking more like a budget administrator than a reformer. The politics of disappointment.
Big promises, poor results
Merz began his term by promising to reignite the “power of the social market economy.”
Too bad almost no one in Berlin knows how to realize this vision . He talked about freeing up the economy, cutting red tape, recommitting to the debt brake enshrined in the German constitution, and ending the green-socialist central planning that has stifled growth.
But now everyone is viewing these promises with justified skepticism . His election promises are already in tatters, not least on the issue of migration.
The crisis at the German borders continues under the cover of the presence of the federal police, a familiar pantomime. The CDU led by Merz bears sole responsibility for having blocked a real reform by childishly excluding the AfD from any political alignment. This exclusion has sabotaged a possible political breakthrough. The “roving chancellor,” who has spent more time abroad than at home, will eventually come face to face with the reality of immigration.
Style trumps substance
Merz’s zigzag path on the debt brake illustrates his preference for appearance over substance. Instead of defending the constitutional debt limit, a pillar of conservative fiscal thinking, he has caved to his new allies on the left. Using extra-budgetary “special funds” to circumvent the constitution is fiscal malpractice. The debt brake, once a firewall against uncontrolled spending, is now exposed as a paper tiger.
He could have given in on the debt by incentivizing consumption, freeing consumers, or investments with a high return on GDP. Instead, not only does he continue with the energy transition nonsense, but he has even entered a tunnel of rearmament that pushes towards spending with a minimum return on growth. It was bad before, now it is even worse.
Merz seems more inclined to avoid conflict with the socialists than to defend the future. He trades tomorrow's prosperity for today's consensus. But real political debate requires conflict, especially with those partners who support the so-called wall against the AfD. In the moralizing echo chamber of the mainstream, real fiscal debate has no place.
The increased social costs of the recession, the erosion of the labor market, and uncontrolled immigration will be offset by higher payroll taxes and federal transfers. The promise of lower taxes is already dead and buried.
And as absurd as it may seem, the government's solution is a trillion-euro "investment package" designed to give the illusion of forward momentum. Real reforms, on pensions or healthcare, remain out of the question. Public debt is set to rise from 63% to 95% of GDP, pushing Germany into the middle range of European debtor countries. But as long as social peace (or coalition harmony) is preserved, the price is considered acceptable.
Imaginative Tools for a Real Crisis
Berlin is taking small steps: a slight cut in corporate taxes, the reinstatement of the declining depreciation rule. These micro-measures are grouped under the marketing slogan “investment stimulus.” Familiar buzzwords are returning: cutting red tape, accelerating approvals, digitalizing administration. Merz talks about a “business-friendly climate,” but offers little more than old slogans in new packaging. He doesn’t have the courage to do anything, and in any case, with socialist partners, he couldn’t.
Even his flagship idea, the “growth workshops” to simplify bureaucracy for small businesses, is more linguistic inflation than serious reform. No ministry has been eliminated. Public employment continues to grow unchecked, the only expanding “sector” of the economy. Businesses now bear 146 billion euros a year in administrative costs . In today’s Germany, entrepreneurs are tax prey, subject to blackmail.
If Merz had really wanted to revive the German economy, he would have acted quickly to reduce both the cost of living and production costs. Abolishing the CO2 tax, eliminating the solidarity contribution or reopening nuclear power would have been strong signals. But none of this will happen. The list of rational reforms grows longer the deeper you delve into Berlin's political jungle. Merz would have needed a chainsaw. He hasn't even picked up a kitchen knife, he barely has tweezers.
Empty words, heavy consequences
Given the crisis in key sectors of the German economy, especially the automotive sector, one might have expected a bolder course. Ending Brussels and Berlin's war on combustion engines would have been a start. The construction sector remains stagnant. Yet no serious attempt is being made to reduce overregulation or self-destructive climate laws.
ESG obligations will not be repealed. The “ heating law ,” the green flagship of the last government, will remain in place, simply “reformed.” Translation: pretend to change, make a fuss, preserve the essence of the wrong law. So far, the new government’s trajectory mirrors that of its predecessor.
Merz often invokes Ludwig Erhard, the father of the social market economy, but betrays no real commitment to his principles. As the United States increases pressure in the trade war, Merz will have to make a decision: side with Brussels in building Fortress Europe or begin dismantling the regulatory stranglehold on the Eurozone economy.
In both cases, he will do so by feigning great seriousness. Like his predecessors, Merz also wants to go down in history as a “climate chancellor,” even if, for now, he is the one of no confidence.
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This is a machine translation of a post published on Scenari Economici at the URL https://scenarieconomici.it/merz-30-giorni-di-nulla/ on Tue, 10 Jun 2025 14:00:35 +0000.