Some years ago, hundreds of German finance ministry staff dressed in black and formed a giant zero to salute their boss, Wolfgang Schäuble, as he left office. It was a tribute to Mr Schäuble’s extreme fiscal conservatism, which had delivered Germany’s first balanced budget in the postwar period. Amid resurgent prosperity in the Angela Merkel years, the so-called black zero – symbolising a constitutional prohibition on public debt– had gradually acquired cult status.
As a new administration prepares to take power in Berlin, it seems unlikely that human euro signs will welcome the latest politician to take on MrSchäuble’s former role. But in dramatic fashion, the spending tapsare set to be turned on. Via a swiftly staged Marchvote in the outgoing Bundestag, “debtbrake” dogma was consigned to history by the chancellor‑elect, Friedrich Merz. The way was thus paved for groundbreaking expenditure on defence, and the overhaul of an economy being left behind in achanged, suddenly menacing world.
So much for the theory – now for the practice. Mr Merz, the centre-right leader of the Christian Democratic Union (CDU), last week concluded the fastest set of coalition talks since 2009. Pending approval of the deal by Social Democratic party (SPD) members, he is expected to be sworn in as chancellor in by early May. In office, the “grand coalition” agreed between the CDU and the SPD –handed seven ministries including finance and defence – will immediately be confronted by challenges that dwarf those faced by almost all its predecessors.
The US under Donald Trump, whether as economic partner or military ally, can no longer be relied upon – an era-defining shift whatever the outcome of the current tariff wars and Mr Trump’s negotiations with Moscow over Ukraine. China, once a vast outlet for the exports which fuelled growth, has morphed into a fearsome competitor, including on German soil. A stagnant economy, combined with a post-Merkel backlash against migration, has accelerated the rise of Alternative für Deutschland (AfD), one of the most extreme far‑right parties in Europe. Last week, a poll fatefully placed the AfD in the lead for the first time.
The pressure from the right – both from within his own party and from the AfD – is having an impact. Mr Merz’s Trumpian promise to turn asylum seekers away at German borders from his “first day”, along with other draconian measures, will only allow the far right to up the ante still further. Meanwhile, he also appears to be looking for wriggleroom on agreed coalition commitments tothe less well off and to climate targets.
Nevertheless, the broad economic thrust of the deal remains right for troubling times. The European Central Bank must play its part – by keeping yields on a leash. As Germany’s neighboursdeal with similar geopolitical threats and uncertainties, the ability of the EU’s most powerful member state to show leadership and forge a path through the crisis will be crucial. Withshort-term growth acutely vulnerable to moodswings in the White House, the effects of spending will take time to be felt in people’s everyday lives. But the prospect of a transformative increase in public investment offers the hope of industrial renaissance and a restoration of voters’ trust in the political centre.
Alongside his SPD counterparts last week, MrMerz confidently announced that Germany was “back on track”. Europe badly needs him to be right.
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