Can the new chancellor solve Germany's economic problems?

Berlin"Germany is back on track," proclaimed the new German chancellor, Friedrich Merz, as the Conservatives and Social Democrats announced their coalition agreement to govern Europe's leading economic powerhouse for the next four years.

However, Merz has not gotten off to a good start. No chancellor has had such a shaky start. Merz needed two votes in the Bundestag, the fourth lowest in the German Parliament, to be elected chancellor. All of his predecessors had achieved this in the first round.

"It is undoubtedly a small blemish at the beginning of this government's term," Merz acknowledged. As the vote was secret, it is not known who were the 18 rebel deputies from the governing coalition who did not vote for him in the first round. We will have to wait and see if they will cause him more headaches this term, which begins after six months without a government and legislative paralysis.

This unexpected initial obstacle has many analysts wondering if the chancellor will be able to solve Germany's economic problems. Can he keep his promises of reforms if his own coalition is unstable?, many in Germany are asking. Merz inherits from the Social Democrat Olaf Scholz a Germany with a seized engine. After two years in recessionBerlin expects a slight economic rebound of just 0.3% in 2025, according to projections from the previous government.

The new chancellor will have to pull Germany out of recession and the industrial crisis, increase defense spending, and face the challenges of the trade war launched by US President Donald Trump. The German auto industry has been hit hard by Chinese competition and has fallen behind in the race for electric cars.

At a time of growing crisis, Germany must break free from its political and economic paralysis with Merz. "He can't do worse than Scholz [in economic matters]," explains John Kampfner, author of the book, by telephone. Why the Germans do it better (Capitán Swing). "The German economy has two problems: one is gross domestic product (GDP) growth and the other is structural reforms, and that, to a large extent, means digitalization. Germany is one of the countries furthest behind in terms of digitalization. Everyone seems to recognize this, but for years no one has made any serious attempt to reform it," Kampfner notes.

The new chancellor seems willing to take on the challenge of digitalization, as evidenced by the fact that he has created a federal ministry for digitalization and modernization. He has appointed Karsten Wildberger, a former executive at the electronics company Ceconomy, to head this ministry.

Room for maneuver

It is still too early to know whether Merz will be able to combat Germany's digital backwardness and reduce bureaucracy to improve the efficiency of public services and businesses, as well as streamline decision-making in a country reluctant to change. Many German restaurants and shops, for example, do not accept card payments, only cash.

Merz has already demonstrated his pragmatism. Before being appointed chancellor, he had managed to get the The German Parliament makes constitutional changes to relax the debt brake., the opposite of what he promised during his election campaign. Unlike his predecessors in office, Merz will have unprecedented leeway to implement his promised rearmament plan, revive the battered economy, and approve a multi-billion-dollar investment package for Germany's aging infrastructure.

Kampfner is optimistic about Germany's ability to climb out of the economic hole it finds itself in and once again become the economic engine of the European Union. "Germany has very strong political and economic fundamentals. Engineering, training, education, regionalization, and high-end manufacturing are still very strong. What's happened is that the country has become complacent over the last ten to fifteen years," he explains. "If Germany can break out of this paralysis, especially now with the emphasis on growth, spending, and defense, the country can recalibrate and become a modern, competitive economy. But it will require a willingness to undertake radical reform, which is as much a political issue as a social one; because many Germans are very comfortable and don't see the need for change."