Originally published at Project-Syndicate | Mar 7th, 2025
Incoming German Chancellor Friedrich Merz is politically aligned with the European Union’s two most powerful politicians: Ursula von der Leyen and Manfred Weber. This trio of Christian Democrats could increase European defense spending – as illustrated by the recent announcements of fiscal reforms – and competitiveness.
NOTTINGHAM – The victory of Friedrich Merz’s Christian Democratic Union (CDU) in Germany’s recent federal election, which all but assures that Merz will be the next chancellor, is an encouraging development for the European Union. The high level of political alignment between German and EU leadership will enable the bloc to implement economic reforms, determine how to boost public spending in vital areas, and develop a new fiscal framework.
Almost immediately after the election, Merz entered into coalition talks with the Social Democratic Party (SPD). This tried-and-true formula – it will be the fourth CDU-SPD coalition since 2005 – will provide more ideological cohesion and stability than the fractious “traffic-light” coalition – the SPD, the Free Democrats (FDP), and the Greens – that preceded it. Above all, the shift in political gravity from the center left to the center right aligns the German government with European Commission President Ursula von der Leyen and European People’s Party (EPP) leader Manfred Weber.
Von der Leyen, a veteran CDU politician with extensive ministerial experience in the German federal government, has consolidated her authority after winning a second term last year, bolstered by several policy successes, such as a new trade agreement with Mercosur. Merz’s relationship with von der Leyen – the protégé of former German Chancellor Angela Merkel, who sidelined Merz to become CDU leader – could be fraught, but they have so far managed to avoid any head-to-head antagonism.
Merz has a closer bond with Weber, the head of the European Parliament’s largest party and the second-most powerful politician in Brussels after von der Leyen (with whom Weber has a good rapport). As a member of the CDU’s Bavarian sister party, the Christian Social Union, Weber supported Merz’s bid for the chancellorship; Merz reciprocated by endorsing Weber for another term as EPP chairman.
This trio of German Christian Democrats could implement the economic reforms that will provide a much-needed boost to European competitiveness. To be sure, there are notable differences in their fiscal approaches. Inspired by Mario Draghi’s report on strengthening the bloc’s economy, von der Leyen has emphasized supply-side measures, while Merz’s “Agenda 2030” focuses more on cutting welfare spending, introducing tax breaks for the Mittelstand – small- and medium-size businesses – and reducing the soaring costs that have put pressure on German industrial giants like ThyssenKrupp and Volkswagen. Crucially, both Merz and Weber worry that green initiatives and climate targets are hampering economic growth.
But there is also much common ground to build upon, particularly in four vital areas. For starters, von der Leyen, Merz, and Weber can work together to cut red tape. That means simplifying regulations; easing reporting requirements for due diligence, corporate social responsibility, and environmental sustainability; and accelerating the digitalization of public administration to lower costs and increase productivity.
Second, they should implement supply-side reforms, including large-scale public investment in infrastructure (rail networks, roads, public transport) and decarbonization (renewables, storage, grids). To win over environmental skeptics, this should be packaged as an industrial policy aimed at reducing energy costs and enhancing competitiveness. The role of nuclear power in decarbonization efforts should also be discussed.
Third, to support critical sectors such as medical technology, biotechnology, AI, and quantum and cloud computing, they should focus on investing in university research, creating a single legal and taxation framework for businesses (with tax breaks for startups), and developing deeper and more unified capital markets.
Lastly, given America’s newfound indifference to its NATO allies, Merz, von der Leyen, and Weber must forge a united front to bring the Ukraine war to a just end and present a robust defense against an increasingly belligerent Russia.
Merz, for his part, has shown a willingness to send more weapons – including German-manufactured Taurus missiles – to Ukraine, and to reintroduce conscription. Most importantly, he recently announced a plan to exempt defense spending above 1% of GDP from the “debt brake,” which limits the annual deficit to 0.35% of GDP. Of course, Merz needs the backing of the Greens or the FDP to ensure the two-thirds parliamentary majority required to change the constitution. And he has only a few weeks to pass this legislation before the new Bundestag – in which the far-right Alternative für Deutschland and the far-left Die Linke could form a blocking minority – must hold its first session.
This bid for limitless national borrowing to fund military expenditure may be more realistic than Merz’s overly optimistic plan for increasing defense spending through welfare cuts, new efficiencies in public administration, and tax-cut-fueled economic growth. Von der Leyen’s proposal to exempt member states’ defense spending from EU fiscal rules over the next four years – part of a larger plan to rearm Europe – should bolster these efforts. But the German government wants to go even further, calling for a complete overhaul of the bloc’s debt and deficit limits.
Boosting Europe’s military capabilities requires more than increased spending: Merz should also work with von der Leyen and Weber to build a genuine European defense market. This can be achieved through the joint investment of national and EU funds into research and development for dual-use technologies like drones; a unified defense procurement system managed by a centralized EU agency; and a “buy European” strategy that gives EU-based defense firms preferential access to public tenders.
To meet its economic and security challenges, Germany must spend an estimated $60 billion per year over the next decade, and European defense spending must increase by €250 billion annually in the short term. The trio of German Christian Democrats leading the EU and its largest economy has already begun to roll out fiscal reforms that would enable such investment. If successful, they could increase European cooperation on defense and security – the traditional preserve of member states, many of which have been stymied by parlous public finances – while boosting the bloc’s overall competitiveness.
Simon Toubeau: Associate Professor in the School of Politics and International Relations at the University of Nottingham, is Principal Investigator of a British Academy-funded project on “Assessing the Drivers and Consequences of Multi-Level States’ Responses to the COVID-19 Pandemic in the G7.”
