Merz's stumbling blocks are cast in hopes of restarting Germany's economically difficult economy
Frankfurt, Germany – Friedrich Merz failed to win the German Chancellor election in the first round of the vote in Congress, despite his victory in the second round – the ability to achieve the largest economic development of Europe, allowing his new government to push Europe's largest economy.
Tuesday's stumbled upon uncertainty about the future of the economy, which has not grown significantly since the 19th pandemic, began when a new coalition government between his coalition group and the Social Democratic Party began.
On top of that, Meles is expected to end a quarrel over spending and budgets that plagued former Olaf Scholz’s unruly trilateral alliance, which collapsed. His February 23 election victory and coalition agreement seemed to provide assurance that his administration could end policy paralysis and face challenges including lagging behind investment in growth projects, choking up bureaucracy and lack of skilled labor.
However, the first round of parliamentary failure raised questions about the stability of the Meers majority and the ability to increase growth after two years of shrinking output. The outgoing government predicts zero growth this year.
“The vote that failed and the fact that it was blue has greatly weakened Melz,” said Franziska Palmas, senior economist at Capital Economics.
Palmas added: “He promises to run a more effective and conflict-free government … it looks less reliable now. And his economic advice, including a significant increase in defense and infrastructure spending, cuts in corporate tax cuts, layoffs and digitization will be much more difficult than expected.”
The Merz League has 328 members in the new parliament. The fact that he only received 310 votes in the first secret vote – when he needed most of 316 of 630 votes, he speculated that some fiscally conservative legislators were boycotting his post-election decision to relax Germany's constitutional restrictions on deficit spending and to build a 500 billion euro fund to build infrastructure such as popularization on the basis of it.
These measures were adopted by the outgoing parliament.
Merz won the election with 325 votes in his second attempt, but caused significant losses. Andrea Roemmele, professor of communications and politics at Herti School in Berlin, said he is taking office “with two black eyes and knees.”
Hopefully the government can quickly push new investments and reforms “has been ruined,” said Carsten Brzeski, macro head of ING Bank. “Today’s activity shows that not everyone seems to understand the urgency and needs a government with a normal government.”
Debt restrictions have limited infrastructure spending over the years, eventually being blamed for slowing growth. Most importantly, China has gone from a profitable export market for German companies to a professional competitor in Germany such as automobiles and industrial machinery. The extensive licensing process has been accused of slowing down new commercial projects, while the loss of cheap Russian gas due to the Ukrainian invasion has increased the energy costs for the business.
While the vote was a “adverse surprise,” said Holger Schmieding, chief economist at Berenberg Bank, some difficult decisions on spending and debt limits have been taken care of in the outgoing parliament. “There is additional fiscal space…the upset today may not affect additional funding for defense and infrastructure.”
Schmieding noted that most votes in parliament were not taken by secret votes, which could prevent some members of the coalition that rejected Meers' vote on the bill in parliament.
The decision to build an infrastructure fund beyond debt restrictions raises hopes of more government spending and exit stagnation. Those hopes were curbed when U.S. President Donald Trump announced new tariffs on nearly all U.S. trading partners, including 20% tariffs on goods from the EU.
This immediately increased the headwind of Germany's export-oriented economy, because whether EU officials could negotiate lower tariff rates before Trump's 90-day pause Institute could enter into force.