The Guardian view on Germany under Merz: Europe’s powerhouse is still struggling | Editorial

Donald Trump's trade wars and Chinese competition constitute formidable headwinds. But old economic orthodoxies are not the answer

Last March, following angst-ridden months as Europe came to terms with Donald Trump's return to the White House, financial markets in Paris, Milan and Berlin were gripped by a surge of optimism. The cause was a historic deal brokered by Friedrich Merz, then Germany's chancellor-elect, which loosened constitutional spending constraints in the EU's powerhouse nation. Here at last, it was hoped, was the fiscal kickstart required to end a prolonged period of economic stagnation, and mitigate geopolitical headwinds blowing from the US and China.

Six months into Mr Merz's premiership, the angst is back and there are the first murmurings of rebellion. Thechancellor's plan included whatever it takes" levels of defence spending, designed to prepare Germany for a changed era in which the US was no longer a dependable ally, and a huge 500bn investment in infrastructure and the green transition. But last week, the chancellor's team of economic advisers downgraded growth forecasts for 2026 to below 1%. And ahead of what wouldconstitute a fourth year of near-flatlining, businessconfidencehasslumped.

Do you have an opinion on the issues raised in this article? If you would like to submit a response of up to 300 words by email to be considered for publication in our letters section, please click here.