BERLIN — Friedrich Merz, Germany’s likely next chancellor, told POLITICO he’s “very worried” the European Union is heading for another financial crisis because governments have taken on too much debt.
“We cannot be as careless with our public finances as perhaps some of the others — and even with others, I’m starting to get very worried,” the conservative frontrunner told POLITICO’s Berlin Playbook Podcast.
He didn’t name the other countries he was talking about but six in the EU — France, Italy, Greece, Belgium, Spain and Portugal — have debt that’s bigger than the size of their yearly economic output.
“The next financial crisis is definitely coming,” he said. “It will be a sovereign debt crisis. We don’t know when it will come. We don’t know from where it will come from, but it will come.”
With five days to go before Germany’s general election, Merz’s comments come amid a debate on reforming Germany’s so-called debt brake, the strict spending rule which limits the federal government’s structural net borrowing to 0.35 percent of gross domestic product. The discussion has become all the more urgent because of U.S. demands the EU pay more for its own defense.
That’s a massive challenge for Germany, whose politicians are still figuring out how the country will meet its pledge to NATO to invest the equivalent of 2 percent of GDP on defense after 2027. Berlin set up a dedicated €100 billion fund to modernize the German army following Russia’s attack on Ukraine in 2022, helping it meet the target, but most of that money is already allocated. The country will have to spend an additional €30 billion annually.
The need for growth
In the interview, Merz did not rule out a reform of the debt brake but said that structural reforms — including in the area of spending on refugees and unemployment benefits — would have to be tackled first.
“The order of the issues must be clear — the first question we need to ask now is what leeway do we have on the expenditure side?” he said, adding: “The key answer for everything is economic growth. And I subordinate everything to that first. And then we can talk about many other topics.”
Merz’s two most likely options for a junior coalition partner — Chancellor Olaf Scholz’s Social Democratic Party (SPD) and the Greens — have, however, long argued that Germany’s challenges cannot be tackled without amending its constitutional limit on borrowing. The issue is therefore likely to play a major role in coalition negotiations.
The party had “already made preparations for several scenarios,” he said.
Regardless of the next government’s composition, Merz ruled out a second term in office for Economy Minister Robert Habeck, who is the lead candidate for the Greens and has worked to link economy and climate policy.
“Not only the economic policy of Robert Habeck will not be continued, the structure of this ministry with economy and climate under one roof will also be discontinued,” Merz said. “This construction is a misconstruction from the outset.”
Merz’s vow to put the economy before climate is a significant challenge for a potential CDU-Green coalition, as is Markus Söder — the charismatic and outspoken leader of the Bavarian conservatives — who has long ruled out such an alliance.
There’s also wide variation in their positioning on migration, with Merz vowing to close Germany’s borders on the first day of his tenure and the Greens considering such plans illegal, making a coalition with the center-left SPD — whose leaders have recently taken a tougher stance on tackling illegal migration — more likely.
“The number of people coming to us must be reduced, and quickly,” Merz said. “Many other countries have shown that it can be done. Why shouldn’t it work in Germany?”
Merz told POLITICO he would detain asylum seekers who have been classified as potentially dangerous by the country’s authorities, resume deportations to countries that Germany is not cooperating with to date because they are ruled by extremists such as the Taliban in Afghanistan, and meet other governments to conclude migration agreements, following the example of Italian Prime Minister Giorgia Meloni.
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