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Merz against Germans and Europeans

Ricardo Nuno Costa, April 01, 2025

The images of popular revolt from 15 years ago in Madrid and Athens will be repeated, this time in Berlin.

Merz against Germans and Europeans

The last session of the Bundestag under the Scholz government paved the way for the extraordinary injection of 500 billion euros into the German economy, with the votes of the CDU/CSU, the SPD and the Greens. Behind this special fund, which involved an amendment to the Basic Law, is an attempt to revive the country’s economy, which has been stagnating since it declared economic war on its biggest energy supplier, Russia, in 2022. More worryingly, the easing of the debt brake that has now been approved does not set any future limits, which could lead Berlin into a debt spiral. For now, a week later, there is already talk of additional spending of at least 350 billion euros on this package. The decades-long brand image of German ‘fiscal discipline’, of the transparency of its economy and of Germany as the continent’s safeguard of monetary stability is thus falling apart.
Merz is doing is using his position as the Eurozone’s strong link by using the whole of Europe to pay for his businesses.

The new chancellor, Friedrich Merz, who has always sold the image of being a ‘frugal’ and ‘rigorous’ politician and has vehemently opposed any change to the debt ceiling, is the mastermind and the one who will effectively direct the implementation of this fund over the next 12 years, thus being able, as head of government, to take out loans for public investments or direct payments from the federal budget. Calculated, the amount comes to a staggering 42 billion extra euros a year, almost a tenth more than the last federal budget. The money will flow into the German economy and generate opportunities, but at what cost?

Merz was for years the head of BlackRock Deutschland, the German branch of the world’s largest ‘shadow bank’, the asset manager BlackRock. In 2020, in order to run for the head of CDU/CSU), he formally stepped down from his position at the New York giant. Now, the opposition (and even members of the current grand coalition with the SPD) believe that the Chancellor wants to continue lobbying for the interests of his bosses on the other side of the Atlantic and combine Germany’s rearmament projects with an infrastructure programme from which BlackRock and the German arms giant Rheinmetall will make juicy profits at the expense of the public purse. MP and former parliamentary leader of the Social Democrats, Rolf Mützenich, accuses Merz of wanting to do business with foreign and security policy by keeping Germany under the thumb of the US military industrial complex. It was the best way he could find to ‘appease Donald Trump’, the SPD MP recently told Spiegel. So it’s clear that there’s no cut with the US, despite all the murmuring and outrage that Trump’s election has caused among a frustrated European elite, who blindly bet everything on Kamala Harris.

From austerity to debt

The Federal Republic, despite its reputation for austerity, is a champion of ‘special funds’. From the Marshall Plan to the country’s opaque and hurried reunification process, Berlin has always found ways to bypass legality or even the rules of the common market in order to keep its public accounts apparently healthy. The current special fund is by far the largest of the 29 previously approved. The Financial Markets Stabilisation Fund (200 billion in 2008), Covid (150 billion in 2020), the Armed Forces (100 billion in 2022) and the ‘energy crisis’ (200 billion in 2022) were the biggest. Through these extra budgets, Berlin has been hiding the true scale of its public debt and budget deficit for the last 20 years. Now things are clearer and many questions arise.

Germany is Europe’s largest economy, but it has been contracting for three years. The Berlin government actually has more liquidity than ever because it is taxing its citizens more than ever, but it needs to use these tricks to approve potentially unnecessary and exaggerated plans. In the current conditions of de-industrialisation, does Germany have the capacity to generate the physical wealth to get the economy growing again, or will the operation result in a setback that could aggravate the inflation already persistent since the special fund against Covid? Experts warn that the initiative will not have the capacity to generate economic competitiveness. Issuing debt for government programmes will do nothing to address this major shortcoming in the German economy.

Consequences for Europe

The approval of this fund further corroborates the idea that Europe as a whole – and not just the South, once vilely labelled the ‘PIGS’ – has, in fact, never left the crisis of 2007-08 and that its political classes (with Germany at the forefront) have insistently done the opposite of what they should have done.

How will France, Italy, Spain and the other Eurozone partners react to a move that could be considered ‘dumping’ between partners? Could this injection cause a new financial derivatives’ crisis?

Merz’s move had the immediate effect of boosting the European public debt market, causing the value of bonds to fall and their rates to rise. This dragged down Italian, Spanish, French and even Japanese bonds as a result. With the German state competing aggressively for new clients to finance its debt, it is forcing its European partners to follow suit. Discord is served. In other words, what Merz is doing is using his position as the Eurozone’s strong link by using the whole of Europe to pay for his businesses.

Does the new government in Berlin intend to finance its economy around sovereign bonds and a Frankfurt stock exchange with little more than a central European reach, and try to compete with the heavyweights of the global markets in New York, London, Tokyo, Shanghai and Hong Kong? Is this realistic?

Merz’s plan coincides with the European Commission’s Readiness 2030 programme to issue another 650 billion euros in debt outside the Budget Pact and another 150 billion to be disbursed in European guarantees. The biggest debt issue since the ‘bazooka’ against Covid, which is still being paid for in the form of inflation. The project calls for states to allocate at least 1.5% of their budgets to defence, in order to launch a continent-wide arms industry and supposedly create jobs in the sector. No one has asked the states (let alone their people) if they want to live in a war economy. No one has said how these 650 billion will be paid back, or what guarantees the ‘European guarantees’ give a State.

The expansive policies of German governments since 2008 have been controversial, even within their own borders. The Federal Court of Audit harshly criticised the new fund: ‘The financial management of the federal government has thus been largely externalised,’ it accused. It warned that the financial package ‘could result in billions of euros in interest costs’. This will have catastrophic economic and social consequences for future generations.

Merz is betting on public spending, but in reality this is a kind of untimely neoliberal Keynesianism, as it will be financed by the US speculative banks, to which the new chancellor has always been closely linked. The whole process seems less than transparent, just to say the least.

Problematic social situation

For big businesses, the arms industry, construction companies, the speculator class and the financial sector, the injection of such a huge amount of money will have the effect of energising the economy for a while and improving some ageing infrastructure. But for the small citizens (the overwhelming majority of the population), the consequences of the current announcement will be devastating. Merz has already announced a ‘radical reform’ of pensions and social welfare benefits.

A good example of the state of public accounts in Germany is yet to be seen. Recently, the scandal broke at the hands of hundreds of thousands of small business owners across the country, who saw their businesses almost bankrupted during the lockdown campaign of the Merkel 4 and Scholz governments. In an extremely deceitful manoeuvre, the banks mandated by the state administrations have now (four years later) demanded that they return up to thousands of euros in ‘aid’ per head, which the state authorities granted them in compensation for the forced paralysis of trade. This is a simple transfer of wealth from the country’s small productive sectors directly into the pockets of the financial-technocratic class (banks, lawyers and accountants), with the public administrations acting as bait.

Social discontent is also being felt in the numerous strikes in various sectors, particularly public transport and airports.

In a recent joint interview, the directors of two popular publications, one linked to the left and the other close to the AfD, agreed to create a united front and promised to join forces against the current state of affairs. There will be larger demonstrations than during Covid, ‘authorised or not’, with encampments in city centres, ‘for as long as it takes’. The images of popular revolt from 15 years ago in Madrid and Athens will be repeated, this time in Berlin.

 

Ricardo Nuno Costa ‒ geopolitical expert, writer, columnist, and editor-in-chief of geopol.pt

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