(This article was written by Derk Jan Eppink and appeared in Wynia’s Week. Friedrich Merz paait links en gooit de financiële cohesie van Europa te grabbel)
Friedrich Merz, leader of the CDU parliamentary group in the Bundestag, has undergone a ‘Gesinneswandel’ since the elections of 23 February. He ran a right-wing campaign, above all on migration, but as the coming Chancellor he threatens to walk on the leash of the German socialists (SPD) and the Greens. He practises the opposite of what he preached before the elections. That gives him a major credibility problem. Above all with his own voters.
On Tuesday the Bundestag supported, with 513 members in favour and 207 against, the financial package to borrow 1,000 billion euros on the capital market for ‘investments’ in infrastructure and defence. The German debt level, now 63% of gross domestic product (GDP), will rise with this amount towards 100%. Germany is becoming ‘Schuldenland’.
Before the elections Merz turned against ‘running up debt’ and praised the ‘debt brake’ in the German constitution as a way of protecting citizens against a spendthrift government. That turned out to be deception. His grand coalition of socialists and Christian democrats (Groko) is becoming the biggest debt-maker in the history of the Federal Republic.
The ‘debt brake’ has been ceremonially buried by an amendment to the constitution. The brake stipulated that the German federal government may raise debt by a maximum of 0.35% of gross domestic product (GDP). With a gross domestic product of 4.3 trillion euros in 2024, the Federal Republic will over the years borrow 1 trillion (1,000 billion). This Schuldenbremse was cleared away by the ‘old’ Bundestag because there was still a two-thirds majority of Christian democrats, socialists and greens. In the new Bundestag, which takes office next Tuesday, that majority no longer exists because of the gains of the far-right Alternative für Deutschland (AfD) and the losses of socialists and greens.
Merz admittedly had little choice, because the AfD is excluded by the other parties, even though it doubled its score in the Bundestag elections to 20.8% of the vote and 152 seats in the Bundestag. Unlike the PVV in the Netherlands, the AfD sits behind a ‘Brandmauer’. Merz was condemned to govern with the SPD; together the two have a small majority.
Merz’s negotiating talents turned out to be heavily overrated. Christian Dürr, parliamentary leader of the liberal FDP (which is disappearing from the Bundestag), said during Tuesday’s debate that Merz had completely failed as a negotiator. ‘You went to talk with the SPD, gave everything away and thought: now I will get my things back. But you got nothing.’ When socialists negotiate they want to take everything home. Merz had only one coalition option, and afterwards stood empty-handed. The debt package of 1,000 billion euros was a gift to the SPD. The German bourgeois press was beside itself, and Bild Zeitung furious.
It became even worse, because switching off the debt brake required a change to the German constitution, and the CDU/CSU and SPD had to knock on the door of the Greens. They immediately demanded a hefty share. The debt package consists of 500 billion euros for the improvement of infrastructure. It was given the name ‘Sondervermögen’, but it simply has to be paid back. In addition, 500 billion euros is being set aside for strengthening German defence.
Merz entered into negotiations with the Greens and offered them 50 billion for environmental policy out of the Infrastructure Fund. The Greens felt insulted: too little. Merz immediately offered 100 billion: deal!
The Greens received another gift, and worse still: the climate neutrality of the German economy around 2045 has to be written into the constitution. It sounded like a meagre dessert, but economically it is disastrous. The German economy has been in recession for three years, de-industrialisation is increasing and citizens are becoming poorer. The earning power of ‘Standort Deutschland’ is broken. After the ‘debt brake’ comes the ‘growth brake’.
Realising this climate target is virtually impossible, because the nuclear power stations also remain closed. Germany gets higher energy prices, continues to struggle economically and saddles itself with a compulsory climate neutrality in 2045. Unlike in France, the constitution is not a scrap of paper there. NGOs will, with government subsidy, go to court to enforce climate neutrality in 2045. And to block ‘fossil’ investments. This is a poison pill for Germany. But Merz found coalition-building in the short term more important than the consequences in the longer term.
Alice Weidel, parliamentary leader of the AfD, said in an earlier debate: ‘Herr Merz, you cannot do it. I have to say that Angela Merkel was right on that point. You cannot do it.’ A scathing remark.
The ‘investments’ were sold in the Bundestag with a great deal of scaremongering. After all, there are two notorious villains: Trump and Putin (who, incidentally, were at that very moment on the telephone about a peace settlement for Ukraine). Merz cast himself as a visionary who knew how to placate ‘red and green’, with lines such as: ‘a first big step towards a European Defence Community’. Merz acted as if it were a new idea, but in 1952 a European Defence Community was founded, with Germany, France, Italy and the Benelux countries. That so-called Pleven Plan advocated a European army (even then), but the treaty was never ratified.
Now that the Bundestag has approved the financial package, the Bundesrat, in which the representatives of the Bundesländer sit, must do the same, with a two-thirds majority. Their problem: since 2020 the federal states are not allowed to take on structural debt. Merz offers: 100 billion out of the Infrastructure Fund. Hosanna! Even Bavaria agrees, because Minister-President Markus Söder wants more Mütterrente, extra pension for women who raised children. Every Landesvater or -mutter has a wish list of some kind. Merz bought everyone in: red, green and the federal states. But he left his voters out in the cold.
The winners of this debt avalanche are the greens with their constitutionally enforced climate neutrality around 2045. The losers are German taxpayers. Germany dreams of a ‘clean conscience’, but the road to a fossil-free society produces a planned economy with bureaucratic directives and subsidies for desired policy.
The Swedish battery manufacturer Northvolt built a production plant in northern Germany. Last week Northvolt went bankrupt. Too little demand. Tesla has the largest factory for electric cars in Germany, but is going backwards. The subsidies are coming to an end and the artificial market is collapsing. The economy of the GDR worked on that basis, but Merz and his red-green friends have learned nothing from that socialist experiment, which lacked free-market corrections.
The debt avalanche has a major impact on Europe. The Stability and Growth Pact, meant to keep budget deficits and government debt within bounds, has undergone the same fate as the debt brake. Kaltgestellt. Member states may spend more money on defence, up to 1.5% of GDP, which does not count towards the stability criteria: a budget deficit of at most 3% and a debt ratio of at most 60%.
Germany of all countries is sinning, which is music to the ears of President Macron. The French national debt amounts to 115% of GDP. Former German finance minister Wolfgang Schäuble once said that Germany was ‘Zahlmeister und Zuchtmeister’. Germany paid but also demanded fiscal discipline. The Zuchtmeister is dead.
This also affects German creditworthiness; if German earning power falters, loans become more expensive. Germany moreover stands surety for loans that the EU raises on the capital market, such as the Corona Recovery Fund and Von der Leyen’s Defence Plan. If Germany loses its AAA credit status, the debt package becomes more expensive. Only the Netherlands and Luxembourg would then still meet the AAA status. The ice beneath the palace of debt is becoming too thin. Germany is indispensable for financial cohesion in Europe. And Merz of all people is throwing that away.
Derk Jan Eppink is a Distinguished Fellow (Honorary) at the Gold Institute for International Strategy, a Washington D.C.-based foreign policy and defense think tank.
