The US-led global trade war is already on course to push Germany into an unwanted recession hat-trick.
After two years of self-inflicted economic harm, many in Berlin are delighted at the opportunity to blame Donald Trump tariffs for a record third year of zero growth in Europe’s largest and most export-oriented economy.
This is a postwar record for Germany, the biggest trading partner of the United States with a record trade surplus last year of €70 billion.
Germany’s unique exposure was reflected on Monday when the benchmark DAX index was among the worst-hit in a stock market rout, tumbling 10 per cent before recovering.
Beyond the obvious tariff targets – car and machine manufacturers, drug and chemical companies – the likely slide in US trade compounds sinking demand from China and has stoked fears that German companies are unprepared for tougher new competition as rivals chase business outside the US.
Yet this crisis may be the making of Friedrich Merz, the centre-right Christian Democratic leader still locked in coalition talks six weeks after his party’s election victory.
Just 10 days after topping polls with a promise of fiscal restraint, Merz performed an elaborate and expensive U-turn to back €1 trillion in new debt for infrastructure and climate investment and, effectively, a blank cheque for military spending.
While Germany’s centre-left – and Berlin’s EU partners – cheered, German conservatives are still reeling.
Many see a link between the broken Merz election promises and a surge in support for the far-right Alternative for Germany (AfD), now neck-and-neck with the CDU in the latest opinion poll.
[ Germany’s Merz woos Greens with €50 billion climate package for defence voteOpens in new window ]
Enter the trade war: the excuse Merz needed to demand budget pruning and sustainable structural reforms from the centre-left Social Democratic Party (SPD), his would-be coalition partners.
Given Germany’s fiscal bazooka is unlikely to have a positive effect until next year at the earliest, Merz argues it is “more urgent than ever for Germany to restore its international competitiveness as quickly as possible”.
In what is supposed to be the final week of talks, he added, “this issue must now be at the centre of the coalition negotiations”.
He has yet to collect the keys to the chancellery, but Merz is not one to let a good crisis go to waste.
