Germany ready for financial squeeze, says Merz

Germany's likely next chancellor Friedrich Merz has said that the country's new government must be ready to make financial cuts despite him having already come up with a debt-heavy spending plan.

Merz and his conservative alliance, known as the CDUCSU, are currently in talks with the Social Democrats, or SPD. The first sitting of the new parliament, or Bundestag, is scheduled on March 25, with a governing agreement expected to be formalized and Merz confirmed as chancellor a few weeks later.

Merz told German public broadcaster ARD that "we will have to cut costs on the federal level, on state level and in local communities … the margins have not become bigger".

The SPD supports the plan, which will see major investment in defense and infrastructure, but for it to be put into action will require a change to the country's rigid constitutional debt limits.

The so-called debt brake was enshrined in Germany's Constitution in 2009 when the world financial crisis was at its peak, and its limitations on borrowing have been a challenge for successive governments ever since.

The brake was suspended in 2020 during the pandemic, and arguments over it were what led to the collapse of the most recent coalition government toward the end of 2024, which in turn brought forward the election planned for the fall of 2025 to February, when the CDU-CSU emerged as the largest party.

The Green Party, whose small bloc of parliamentary votes could prove vital to the proposed reform, backs alterations to the debt brake, but has argued over the wording, and insisted that environmental and clean energy measures should be included in it.

However, several other Bundestag members have either already begun legal challenges to the proposal, or plan to make them.

Florian Toncar, a Bundestag member from the business-inclined Free Democratic Party, said the remnants of the outgoing coalition government of the SPD and Green Party had not been able to answer "very simple and fundamental questions" about the financial proposals, and that the limited time available ruled out any serious analysis.

Jens Suedekum, a professor of international economics at the Duesseldorf Institute for Competition Economics, who was one of the economists who helped draft the proposal, told the Euronews website that amid all the party political wrangling, the overriding concern was that in the end, nothing at all would be agreed, which would have negative consequences for everyone.

"We (Germany) have been stagnating for five years," he said. "We are entering dirty tariff wars with the United States (and) geopolitical tensions, … we can only basically push through our interest if we bargain from a position of economic strength."