Unlock the Editor’s Digest for free
Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.
Germany’s election frontrunner Friedrich Merz said on Sunday he was open to reforming the country’s strict borrowing rules as he came under pressure about how he would finance higher defence spending.
In a televised debate ahead of the parliamentary election on February 23, the Christian Democrat (CDU) leader conceded Germany’s constitutional “debt brake” could require reform as he said that defence spending in Europe’s largest economy would “probably go towards 3 per cent” of GDP amid pressure from US President Donald Trump.
After chancellor Olaf Scholz said it was “ridiculous” to claim spending cuts and economic growth alone could provide the tens of billions needed to finance a bigger defence budget, Merz raised the possibility of changing the constitutional requirement that caps Germany’s structural deficit at 0.35 per cent of GDP.
“I have always said that you can discuss this, but definitely not at first,” Merz said. “First comes the savings potential, growth and also the budget reallocations that are urgently needed.”
Merz’s fiscally conservative CDU is officially committed to maintaining the debt brake, with its election manifesto warning that “today’s debts are tomorrow’s tax increases”.
But leading economists have described the brake as an “outdated fiscal straitjacket” that will be almost impossible to maintain while also making much-needed investments in infrastructure — as well as responding to Trump’s demands that Europe make a greater financial contribution to western defence.
Merz said Germany would first focus on regularly meeting its target of spending 2 per cent of GDP on defence, but added that he expected the figure to eventually rise to closer to 3 per cent — still far short of the 5 per cent figure that Trump has proposed.
Scholz, whose Social Democrats (SPD) are languishing in third place in opinion polls, was frequently on the back foot in the tense 90-minute debate.
The first half an hour was dominated by migration policy following a knife attack last month by a mentally ill asylum seeker who killed a two-year-old child and a passer-by.
With his CDU party leading in the polls with support of about 30 per cent, Merz was attacked by Scholz for his willingness to rely on the backing of the far right Alternative for Germany (AfD) to pass a migration motion in parliament.
It was first time in Germany’s postwar history that a majority was reached via the far-right, but Merz reiterated that he ruled out a coalition with the AfD. “Such a thing is out of the question,” he said.
Asked about the hundreds of thousands of protesters who have since taken to the streets across Germany to denounce the taboo-breaking move by Merz in parliament, he said he was getting support from other parts of the electorate.
“Polls are rising,” Merz said, referring to a one percentage point bump for the CDU in the latest surveys. “So it couldn’t have been all that wrong. I would have liked that not to happen.”
But he added it had not been possible to secure support for the migration motion in parliament from the SPD or the Green party.
Scholz underlined that he had enforced tougher border controls after a fatal knife attack by a Syrian national in Solingen in August, and had increased deportations of illegal migrants by 70 per cent.
When Merz admitted that Scholz’s coalition did “not do nothing, it did a little”, it prompted a “thank you, that’s very generous” from an irritated chancellor.
Scholz denied his coalition had made Germans poorer, blaming Russian President Vladimir Putin after his full scale invasion of Ukraine in 2022 caused a spike in energy prices and inflation. “We then tried to help,” he said.
Merz asked Scholz “why in God’s name” he shut down Germany’s three remaining nuclear power plants in 2023 in the middle of an energy crisis.
He described the chancellor’s claim that Germany was not suffering deindustrialisation amid a deep crisis in the manufacturing sector as “astonishing”.
Scholz sought to depict Merz as a dangerous free-market ideologue. He accused Merz — who has said that he wants to separate the operation of Germany’s trains from the track network — of wanting to privatise Deutsche Bahn.
He warned: “That will end as badly as in England, where nothing works any more and you only have broken tracks and bad trains.”
