Focus turns to money as German political honeymoon ends
Nearly two months after collecting the keys to the chancellery, however, Berlin political insiders have given the new workplace of chancellor
Friedrich Merz
a new name:
Germany
's last-chance saloon.
The 69-year-old's first term as leader is also the last opportunity, so the dominant narrative here, for Germany's political centre to hold.
And those close to the new German leader say he began correcting his positions after a series of shocks that began five days after his election victory.
READ MORE
In his new book Democracy's Last Chance, German political writer Robin Alexander argues that Merz – a lifelong Atlanticist – was deeply shaken by Donald Trump's Oval Office dressing down of Ukraine's president Volodymyr Zelenskiy.
Alexander writes that, for Merz, something significant happened in Washington on February 28th: 'The Americans are not just threatening to hang out Ukraine to dry, but all its allies.'
This was the final trigger for Merz to perform a radical U-turn and push to loosen restrictive debt rules – contrary to his campaign promises – that includes what is effectively a blank cheque on defence.
Increasing Germany's pure defence spending to 3.5 per cent of GDP is, analysts agree, as historic and far-reaching moment as ex-ECB president Mario Draghi's 'whatever it takes' speech in the euro crisis or the 'Zeitenwende' (watershed) address of Olaf Scholz after Russia's invasion of Ukraine.
But it is not just on defence, debt and the transatlantic relationship where Merz-led transformation is emerging: Israel's ongoing blockade of Gaza has seen a toughening of rhetoric from Berlin, previously unthinkable in the
Christian Democratic Union
(CDU), if not – as yet – matched by action.
But elections are won or lost at home. After two months in a domestic political holding pattern, with an economy in its third year of recession, Merz is anxious to try some actual governing before the summer break.
On Wednesday he will chair a key meeting with his centre-left Social Democratic Party (SPD) partners where coalition reform aspirations meet Berlin's new political reality.
Expectations have been building since the centre-right CDU, along with its Bavarian CSU allies, won last February's snap election with 28.5 per cent support. The centre-left SPD finished third with a disastrous 16.4 per cent, just enough votes to return to power – this time as a junior partner.
Berlin's political honeymoon, such as it was, ends on Wednesday when the coalition members meet to fill in the awkward detail of their vague shotgun coalition agreement.
From tackling climate change to an ban on the far-right
Alternative for Germany
(AfD), many of the coalition's prickliest problems are unresolved issues where the CDU is more sceptical of government intervention.
As always, though, the biggest coalition rows are building over money.
SPD co-leader Lars Klingbeil has presented spending estimates for the new government term with total borrowing of a record €850 billion. Photograph: Filip Singer/EPA
SPD co-leader Lars Klingbeil, also the federal finance minister, has already presented spending estimates for the new government term with total borrowing of a record €850 billion. That is over and above off-balance-sheet spending of at least €1 trillion agreed in March for infrastructure and defence investment.
CDU and CSU politicians warn Berlin borrowing is 'out of control', and demand cuts to welfare budgets beloved of SPD leaders and delegates who gathered in Berlin for a weekend party conference.
It was a first chance for many to let off steam at February's historic election disaster – and a party leadership many think is not listening to the grassroots.
Even so, many were shocked at the body blow delegates delivered to Klingbeil.
The 47-year-old, a pragmatic centrist, has moved quickly since February to establish himself as the SPD's new kingpin and deputy chancellor.
Despite his success in securing considerable concessions from the CDU in the post-election scramble, his own party re-elected him as SPD co-leader with just 65 per cent support.
Political analysts see growing tension in power as SPD grassroot demands for real leftist policies – on welfare, housing and pensions – collide with a right-wing coalition partner and an increasingly professional, and distant, SPD leadership.
'Lars wants power and has a centralised understanding of power, and is pushing a professional party along American lines,' said Gero Neugebauer, a Berlin-based political analyst.
Despite SPD uncertainties, and unresolved trade and migration tensions, voter fury over the debt U-turn has evaporated and the CDU is back at its election level of support.
Even with the AfD trailing by just five points, and the clock ticking down to the next election, the Merz message for Europe is that Germany is back.
At a speech honouring European Commission president Ursula von der Leyen as recipient of this year's Charlemagne prize, Merz insisted Germany was once more 'placing itself at the service of a strong, united Europe'.
'We will not stand at the sidelines when it comes to defending freedom and democracy, rule of law and human dignity on the continent,' he said in Aachen. 'History doesn't just happen, politics is made by people and political decisions make history.'
Hashtags
Try Our AI Features
Explore what Daily8 AI can do for you:
Comments
No comments yet...
Related Articles
Irish Times
an hour ago
- Irish Times
US threatens EU with 17% tariff on food exports
The US has threatened to hit EU agricultural exports with 17 per cent tariffs in a twist to its trade conflict with Brussels, three people briefed on the discussions said. Such tariffs would hit everything from Kerrygold butter to Belgian chocolate and olive oil from the Continent, all of which are big sellers in the US. The eleventh-hour move, which EU officials characterised as an escalation of the transatlantic dispute, came ahead of a July 9th deadline to agree a deal between the two trading giants. US president Donald Trump imposed a 20 per cent 'reciprocal' tariff in April but reduced it to 10 per cent until July 9th to allow for talks. Until recent days, EU officials had been expecting that talks with the US would hold duties at the baseline rate. It was unclear if the 17 per cent on foodstuffs would be in addition to the other tariffs announced by Mr Trump or instead of them. Mr Trump has demanded that Brussels give American companies wide-ranging exemptions from regulations and cut its trade surplus with the US, but EU officials have rejected Washington's latest proposals on any such exemptions and food tariffs. [ Is Big Pharma lobby shielding Ireland from the worst of US tariffs? Opens in new window ] The EU is trying to secure its own carveouts for some products. One Brussels official said aircraft parts and spirits are among goods for which the bloc is seeking exclusions. They said that the two sides were working on a five-page draft 'agreement in principle', but this has very little agreed-upon text in it. Ursula von der Leyen , the European Commission president, said on Thursday that she hoped for an agreement in principle that would allow the sides to keep talking pending a final deal. However, Washington is pushing countries to agree binding deals by Mr Trump's deadline. Maroš Šefčovič, the EU trade commissioner, was warned of the proposed 17 per cent duties on agri-food on Thursday during meetings in Washington. The 27 member state ambassadors were informed on Friday. The value of EU agri-food exports to the US, including products such as wine, totalled €48 billion last year. Mr Šefčovič has repeatedly characterised the changing of EU regulations to suit the US as a red line. However, the EU is also on a deregulatory drive, weakening some environmental laws. EU countries are divided between accepting some higher tariffs in return for a period of certainty and those who wish to retaliate to put pressure on the US to compromise. Friedrich Merz, chancellor of Germany, the EU's biggest and most export-dependent economy, has been pressing the commission, which runs trade policy, to settle for a quick deal. He is anxious for exemptions from Mr Trump's sectoral tariffs of 25 per cent on vehicles and 50 per cent on steel. However, several ambassadors intervened in Friday's meeting to press for stronger action against Washington, said two people briefed on the meeting. Two EU diplomats said they had been told that the US had sketched out three scenarios for July 9th: Countries with an 'agreement in principle' would keep the 10 per cent tariffs, with possible further tariff relief at a later stage; for countries that failed to reach such an agreement, the tariffs would return to the level announced in April until a deal was struck; higher tariffs would be applied to countries that the US believes are not negotiating in good faith. As the EU prepares its possible retaliation for US duties on its products, member states have already approved counter-tariffs on €21 billion of annual US exports from July 14th. The commission is assembling a package of €95 billion more, including on aircraft and food. A commission representative said: 'The EU position has been clear from the outset: we favour a negotiated solution with the US, and this remains our priority ... At the same time, we are preparing for the possibility that no satisfactory agreement is reached.' The White House has yet to respond to a request for comment. – Copyright The Financial Times Limited
Irish Times
6 hours ago
- Irish Times
Will the Government really put McDonald's ahead of children in poverty?
With billions flowing into the Government's coffers from our corporation tax bonanza, there were some big winners from last year's pre-election budget. Among the biggest were the children of wealthy parents. While CSO statistics show that an average person receives about €100,000 in gifts or inheritances from their parents over a lifetime, Budget 2025 announced a €25,000 tax cut for the tiny fraction who receive more than €400,000. Such giveaways contrast sharply with below-inflation increases to most social welfare payments over recent years. This has left core rates of payments worth less today than they were in January 2020: a remarkable situation given the strength of economic growth and the tens of billions in new spending announced. These real-terms cuts have contributed to stagnating incomes for the poorest households as well as stubbornly persistent levels of child poverty. READ MORE Research published by the ESRI in partnership with Community Foundation Ireland has shown that 250,000 children live in households below the poverty line after accounting for housing costs: more than one in five children. A wealth of evidence shows this has enormous economic and social costs , with a lack of adequate resources compromising the ability of children to grow and thrive, even in adulthood. The importance of reducing child poverty has been recognised by successive governments, with ambitious targets set out in various plans, strategies and roadmaps since 1997. However, we have seen no real progress for the best part of two decades. Shockingly, the share of children below the poverty line after housing costs is no lower than during the worst years of the financial crisis. The reason child poverty persists is that whenever the opportunity comes to translate words into action there is always some higher priority. This year that higher priority looks to be the hospitality sector, which has engaged in a sustained, well-funded lobbying campaign for even more preferential VAT treatment than it currently enjoys. VAT is currently levied on accommodation, catering and restaurant services at a reduced rate of 13.5 per cent, compared with the standard rate of 23 per cent. Estimates by Revenue suggest this amounts to a tax relief of almost €2 billion per year. Cutting the rate further to 9 per cent would cost more than €800 million more a year, sucking up most of the space available for new measures in the forthcoming budget. This is despite the fact the sector is – by any objective measure – doing well. CSO data shows that hospitality employment was 7 per cent higher in the first quarter of 2025 than a year earlier, while figures from the Companies Registration Office show there were 11 new companies incorporated for every liquidation in the sector. Even if the sector were struggling, a VAT cut makes little economic sense. Rather than supporting struggling small restaurants or cafes, the biggest beneficiaries would be large operators with the highest turnover. On what grounds can a multimillion-euro tax cut for outlets such as McDonald's possibly be justified? Yet the Tánaiste's recent elevation of this expensive and economically illiterate tax cut to a 'solemn commitment' would seem to place it ahead of all other promises in the programme for government. This includes a pledge to 'lift more children out of poverty, giving them the futures they deserve'. Doing so would have immense benefits, but unavoidably requires spending money. The most effective way of spending this money is to introduce a second-tier of child benefit. This would leave the current universal child benefit payment as it stands but give an additional amount to lower-income families with children, replacing the inadequate patchwork of existing supports. Recent estimates from the ESRI suggest such a reform would reduce child poverty by more than a quarter. This amounts to lifting more than 50,000 children out of poverty at a cost of €772 million. While substantial, this cost is about a quarter of achieving the same reduction by increasing the universal child benefit payment. Strikingly, it is also less than that of the planned cut to VAT for the hospitality sector. This is the reason a second tier of child benefit has been called for since 2007 by a range of expert bodies, including the last government's Commission on Taxation and Welfare (which I was part of). A second tier of child benefit would mirror reforms implemented in the UK over the 2000s by then chancellor Gordon Brown. Writing in these pages last year, he described the approach as a 'progressive universalism' that ensures 'a floor of basic social rights for all, but with more support for those who need it most'. When Brown gave a keynote address to the Irish Government's inaugural Child Poverty Summit last year, he was introduced by then taoiseach Simon Harris, who declared that 'ending child poverty is a defining challenge for any leader' . After 20 years without progress in reducing – let alone ending – child poverty, it is a challenge our leaders are failing. Whether that failure defines their legacies depends on the decisions they take in the coming budgets. Dr Barra Roantree is director of the MSc in economic policy at Trinity College Dublin
Irish Times
6 hours ago
- Irish Times
Aontú has held talks with two high-profile people on presidency but won't divulge their names
Aontú has held talks with two high-profile people who may be interested in running in the presidential election later this year, party leader Peadar Tóibín has said. The Meath West TD said on Friday that the party, which holds two Dáil seats, had spoken to 'two people who are really well recognised' about the possibility. However, he refused to name either would-be candidate, saying he needed to respect their privacy and the private nature of the conversations held to date. Mr Tóibín said neither person was aligned with any political party, but they would both make outstanding candidates. READ MORE While neither person aligned fully with the views of his party, he suggested they could potentially secure the support of several parties or groups. 'Some views we share, some views we are not on the same page,' Mr Tóibin said. 'They are both making up their minds about taking it forward. I expect the decision to be made at the end of next week, or shortly afterwards.' The Aontú leader said he strongly believed in the importance of having a robust and engaged presidential election campaign. 'The President is a very important position in the State. It is very healthy to have a good debate about what the values we expect the holder of the office to hold,' he said. Fine Gael MEP for Ireland South Seán Kelly said he was '50-50' on deciding whether or not to seek a nomination from his party. He said he would make his mind up over the next week. Saying his intentions have varied from day to day, the former GAA president added: 'A lot of people are encouraging me, and I'm looking at the various options and what's involved in it.' Asked if he would be prepared for a robust campaign involving personalised criticism, Mr Kelly said in his time at the GAA they were trying to open Croke Park to other sports 'and we got a lot of stick over it'. 'If you go for something, you have to be able to take the rough with the smooth and just get out if you can't.' Asked for a response to an Irish Times report on his Fine Gael colleague Mairead McGuinness's office allowances when she was an MEP , he said he would never comment on another politician's situation. Earlier, Ryanair chief executive Michael O'Leary ruled out a bid for the presidency, calling it 'the most useless, valueless, wasteful job'. He said he would be 'happy to endorse' Ms McGuinness if she was to launch a campaign. 'I think she's been a terrific success on the European stage, both as an MEP, vice-president of the European Parliament and a European Commissioner,' he told RTÉ's Claire Byrne Show. Mr O'Leary said he has 'absolutely not' been asked to run for the Áras, adding that 'it sure as hell wouldn't be me'. 'I have a useful, valuable job here in Ryanair,' he said. Independent Senator Aubrey McCarthy, the founder of the Tiglin charity, said he has not been in talks with any party. However, he said there have been approaches from members of parties for 'broad conversations' about the presidency, with some expressing the view that he might appeal to a wider base. It is understood that the Independent Minister of State Michael Healy-Rae was mentioned at a meeting of Independent parliamentarians as a possible candidate. When asked about this on Friday, the Kerry TD said he was not aware of the meeting and had no knowledge of the conversation and its context.
