Six months into Friedrich Merz's chancellorship, Germany's economic optimism has faded. The historic deal to loosen constitutional spending constraints, which sparked a surge in financial markets last March, has not yet delivered the expected fiscal kickstart. Growth forecasts for 2026 have been downgraded to below 1%, and business confidence has slumped, raising concerns of a fourth year of near-stagnation.
Merz's plan included substantial defence spending and a €500bn investment in infrastructure and the green transition. However, patience is wearing thin among voters, with fewer than one in five Germans wanting Merz to stand again at the next federal election. The far-right Alternative für Deutschland party is topping polls, reflecting widespread disillusionment with mainstream politics.
Germany faces formidable headwinds from US trade wars, Chinese competition, and Russia's war in Ukraine, all undermining its export-led model. Merz, a former fiscal hawk, is under pressure from critics to rein in social spending to boost competitiveness. His Social Democratic coalition partners are resisting a revolt by Christian Democrat MPs over a proposed pensions package.
The editorial argues that falling back on old economic orthodoxies would only empower the far right. Instead, Germany needs to revive its social model and turbocharge investment to adapt to a multipolar world. Merz's bold fiscal response was necessary, but the challenges remain immense.
