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German economy faces threat from US tariffs, says Merz

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Friedrich Merz, the leader of the CDU and prospective chancellor of Germany, stated that Donald Trump’s tariffs and their detrimental impact on the German stock market underscore the necessity for tax cuts and deregulation.

On Monday, Germany’s primary stock index was among the worst-performing in Europe, plummeting by 10% before partially recovering as investors reacted to Trump’s announcement of sweeping import tariffs that appear poised to reshape the global economy.

Merz commented on Monday, “The situation in international stock and bond markets is dramatic and threatens to worsen. It is more critical than ever that Germany regain its competitiveness. This must be central to the coalition negotiations.”

The strength of the German economy lies in its exports of goods such as machinery, chemicals, and vehicles, with the US being a key market. Approximately one in ten German exports are destined for the US.

German exports had already become less competitive in recent years due to rising energy prices and other factors. The imposition of a 20% tariff by the Trump administration is unwelcome news for the industry.

The market shock appears to have injected a new sense of urgency into coalition talks between Merz’s Christian Democrats (CDU) and the Social Democrats (SPD) following the federal elections on February 23.

According to German media reports, coalition discussions were briefly paused on Monday as Merz, outgoing Chancellor Olaf Scholz, and SPD leaders consulted on how to respond to the US measures.

An estimate by the Cologne Institute for Economic Research suggests that the total economic damage to the German economy during Trump’s four-year term could reach up to €200 billion, potentially leading to a 1.5% reduction in GDP levels by 2028.

Deutsche Bank economists noted in a report on Monday, “In the short term, the new government will struggle to cushion the immediate trade shock,” adding that Germany could face a third year of GDP decline in 2025.

Merz, long known as a “fiscal hawk,” had already faced criticism within his party and domestically after approving a constitutional amendment allowing up to €1 trillion in new borrowing, a key demand of the SPD and Greens.

His comments on Monday aimed to reaffirm the CDU’s traditional focus on fiscal and economic discipline in the face of a changing global landscape.

Since the elections, Merz has seen his party’s approval ratings decline as conservative voters increasingly doubt his ability to deliver pro-business reforms and tax cuts. Polls also indicate rising support for the right-wing Alternative for Germany (AfD), which emerged as the second-largest force in parliament in the February vote and now appears to be catching up with the CDU for the first time.

Critics within the party say Merz has failed to deliver on his pre-election promise to “sharply shift the CDU to the right” on key policy areas.

Divisions within the party have become increasingly apparent in recent days after members of the conservative bloc’s youth organization in Cologne wrote a letter to Merz expressing their unease.

The letter stated, “Mr. Merz, we believed in your political leadership. We trusted you and fought for you. But now we ask the question: For what? For a CDU that bows to the left-wing mainstream?”

Much of the criticism against Merz comes from the Young Union (Junge Union), the youth organization of the conservative bloc.

Johannes Winkel, the head of the organization who also sits on the CDU’s executive board, threatened to vote against a coalition agreement with the SPD that does not include “fundamental conservative policies.”

Winkel demanded that immigration be curbed and that economic competitiveness be restored by reducing regulation and bureaucracy.

In an interview with the Süddeutsche Zeitung, the youth organization leader said, “If we enter the coalition without a delayed and promised change of policy, the country will suffer great damage.”

The youth organization in Cologne demanded that Merz fulfill his pre-election promises to reject asylum seekers at the border, reject tax increases, and ensure a “major reduction” in bureaucracy, all of which the SPD has resisted to varying degrees.

The conservative youth organization wrote, “If this course is not corrected immediately, you will not only endanger the CDU’s profile but also destroy the public’s trust and the commitment of its members.”

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Germany’s SPD faces ‘Russia rebellion’ at party congress

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Divisions within Germany’s Social Democratic Party (SPD) over rearmament and relations with Russia are set to culminate at its upcoming congress, where party leader and finance minister Lars Klingbeil faces backlash from a faction within his party.

According to a report in the Financial Times, one of the critics of the SPD leadership is the eldest son of former SPD Chancellor Willy Brandt, who still holds significant influence over the party with his Ostpolitik (Eastern Policy), a policy of rapprochement with the Soviet Union at the height of the Cold War.

Peter Brandt, a 76-year-old historian, has co-signed an SPD motion criticizing the government’s rearmament plans and advocating for “de-escalation and a gradual return to cooperation with Russia.”

The manifesto, published ahead of this week’s SPD party conference, states, “There is a long road ahead to return to a stable order of peace and security in Europe.”

While acknowledging that strengthening the defense capabilities of Germany and Europe is “necessary,” the authors emphasize that these efforts must be “part of a strategy aimed at de-escalation and the gradual restoration of trust, not a new arms race.”

Peter Brandt told the Financial Times that Klingbeil approved the new defense spending increase “without checking if it was the majority view.” He added, “This is a problem. There isn’t as clear a stance among the members as is reflected in the leadership.”

The criticism comes as Klingbeil, deputy chancellor in the coalition government led by Christian Democrat Friedrich Merz, prepares a major “funding injection” for the military, aiming to increase the country’s defense budget by 70% by 2029.

Brandt’s words are a reminder that many Social Democrats remain reluctant to fully embrace the country’s “Zeitenwende” (turning point) in defense policy, announced by former SPD Chancellor Olaf Scholz following the 2022 invasion of Ukraine.

The internal rebellion could create problems for Klingbeil, who negotiated the coalition agreement with Merz after the SPD’s worst-ever election result in February. The dissenters could make it difficult for the government, which holds a slim majority of just 13 seats, to pass legislation on the budget, arms deliveries, and the planned return to compulsory military service.

Uwe Jun, a political scientist at the University of Trier, noted that while the rebels are not a majority in the SPD, they are not a small minority either. “There is a long tradition in the SPD of people who came from the peace movement of the 1970s and 1980s,” he said. “They are critical of anything related to the military.”

Klingbeil’s reorganization of the party leadership following the election fiasco has further fueled the controversy. The 47-year-old politician is accused of consolidating his power after replacing 66-year-old Rolf Mützenich as the head of the SPD parliamentary group. Mützenich is also a signatory of the manifesto.

“Personal and political tensions are also playing a role,” said Gesine Schwan, a political scientist and SPD member who was asked to sign the motion but declined.

Klingbeil, who grew up after the fall of the Berlin Wall, has tried to shift the party’s foreign policy stance. In a series of speeches and editorials in 2022, he admitted that the party had “failed to realize that things in Russia had already been moving in a very different direction.”

The manifesto’s signatories argue that the pursuit of peace must be the priority. Ralf Stegner, who helped draft the text, caused controversy last month when it was revealed he had traveled to Azerbaijan in April to meet with Russian officials, including one under EU sanctions.

Stegner, 65, who at the time served on the parliamentary committee overseeing Germany’s intelligence service, defended the meeting, stating that MPs from Merz’s CDU had also attended to keep communication channels with Moscow open.

“You have to keep talking to everyone,” Stegner told the Financial Times. “The insinuation that this means agreeing with what others say or being a secret agent for a third party is, of course, complete nonsense.”

Stegner’s stance reflects the continued nostalgia within the SPD for Willy Brandt’s Ostpolitik. According to a party insider, members who joined the SPD under Brandt’s leadership, now in their 60s, make up 58% of the membership.

Peter Brandt, who said he never fully shared his father’s views, explained that he signed the manifesto because he believes the Russian threat is exaggerated.

“I do not agree with the idea that Russia will attack NATO,” said the younger Brandt. “The Russian army has shown weakness in the Ukraine war.”

He added that NATO is “currently superior to the Russian army in conventional terms, even without the Americans,” and called NATO’s goal of dedicating 5% of GDP to defense “unreasonable.”

Klingbeil, however, pointed out that Willy Brandt, who won the Nobel Peace Prize in 1971, also oversaw large defense budgets exceeding 3.5% of GDP.

“And ultimately, I don’t think anyone would associate Willy Brandt with someone who focused solely on military matters,” the SPD leader remarked.

Jun said Klingbeil symbolizes the “new school of thought within the party,” adding that the SPD’s younger MPs are “quite pragmatic” on Russia.

But Schwan believes Klingbeil will have to contend with the “old guard” for a while longer. “De-escalation, security, and peace policy are still part of the SPD’s DNA,” she said.

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New MI6 chief’s grandfather was a Nazi collaborator known as ‘The Butcher’

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The grandfather of the new head of MI6 was reportedly a Nazi spy known as “The Butcher” in German-occupied Chernihiv.

Blaise Metreweli was appointed earlier this month as the first female spy chief in the 116-year history of the Secret Intelligence Service (MI6).

According to documents cited by the Daily Mail, Metreweli’s grandfather, Constantine Dobrowolski, was a Nazi collaborator who boasted of killing Jews.

The newspaper reports that Dobrowolski, a Ukrainian, defected from the Red Army to become a chief informant for the Nazis and Adolf Hitler in the Chernihiv region.

Metreweli, 47, never knew her grandfather. He remained in Nazi-occupied Ukraine when his family fled in 1943 as the Red Army liberated the area.

Documents found in German archives reveal that Dobrowolski was known to the Nazis as “Agent No. 30.”

At one point, the Soviet Union placed a 50,000-ruble bounty on Dobrowolski’s head (approximately £200,000 today), labeling him “the greatest enemy of the Ukrainian people.”

According to the newspaper, Dobrowolski sought revenge against Russia for killing his family and confiscating their property during the 1917 revolution.

One file reportedly contains a handwritten letter from Dobrowolski to his Nazi superiors, signed “Heil Hitler.”

In another file, he is said to have boasted that he “personally participated in the destruction of the Jews” and had killed hundreds of Ukrainian soldiers.

A spokesperson for the Foreign, Commonwealth & Development Office commented on the allegations, stating, “Blaise Metreweli did not know and had never met her father’s father. Blaise’s ancestors are characterized by conflict and division, and like many with Eastern European roots, she has a history that is only partially understood.”

The spokesperson suggested that it is “precisely this complex heritage” that “contributes to Blaise’s determination to prevent conflict and protect the British people from the modern threats of hostile states” as the next head of MI6.

Metreweli grew up abroad before studying anthropology at Cambridge, where she was part of the winning team in the 1997 Boat Race.

Joining MI6 in 1999, Metreweli served for two decades in Europe and the Middle East.

Metreweli currently holds the position of “Q,” the head of the technical section of MI6, made famous by the James Bond films.

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Merz urges Brussels to secure a US trade deal within days

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German Chancellor Friedrich Merz is demanding that Brussels sign a trade deal with the US within days.

Bringing the issue to the agenda of today’s EU leaders’ summit, Merz described the European Commission’s negotiating strategy this week as “too complex.”

Calling for greater urgency and focus in negotiations with the US president, Merz said he would convey this demand to other EU leaders, alongside Emmanuel Macron and Giorgia Meloni.

The leaders are eagerly awaiting an update from the EU’s executive body during dinner on its talks with the Trump administration.

Concerns are growing that if Brussels and Washington fail to reach an agreement, “reciprocal” 50% tariffs will be imposed on all goods starting July 9.

The bloc, which had previously dismissed the recent UK-US trade deal—a pact that imposed a 10% baseline tariff while offering some relief for car and steel exports—is now coming to terms with the reality that securing a better outcome will be challenging.

“I still hope that a trading power like the EU, with its 450 million people, will have more leverage than the UK,” a senior EU diplomat said on Wednesday.

The German chancellor stated that the priority must be to protect Europe’s key industries—particularly Germany’s automotive, manufacturing, semiconductor, pharmaceutical, steel, and aluminum sectors—from the sector-specific tariffs that Trump has either imposed or threatened to impose.

However, Trump is heavily reliant on these tariffs, having implemented the highest rates since the Great Depression of the 1930s to compel manufacturers to move production to the US and close the nation’s trillion-dollar trade deficit.

The US trade deficit with the 27 EU member states reached a total of $232 billion in 2025, accounting for approximately 19% of the total figure.

Underpinning Merz’s demands is a persistent concern that Brussels might establish a broad framework centered on a flat 10% tariff for most common goods, rather than isolating sectoral tariffs on items like cars, which he argues harms German exporters.

Another EU diplomat noted that keeping a broad-based tariff in place was “not a task we gave the European Commission,” adding, “We hope the Commission will try to find a solution for the most at-risk sectors.”

Merz’s call to “get the job done” faces two primary obstacles. First, the EU negotiating team has warned that Washington will likely offer only minor concessions, such as limited tariff reductions tied to restrictive quotas, after which full tariff rates would apply.

This is a far cry from the zero-tariff agreement Merz had initially hoped to achieve and closely resembles the UK deal, the only one struck with Trump so far.

Meanwhile, negotiations with the US on Germany’s biggest demand—automobiles—are proving particularly difficult.

Merz and German automakers are pushing for a mechanism that would allow them to offset their vehicle imports into the US with models they export from their American production facilities.

Economy Minister Katharina Reiche presented such a proposal during her visit to the US earlier this month. Both BMW and Mercedes-Benz operate large factories in the US that produce certain models for global export. However, considering the EU exports over 750,000 vehicles to the US annually, it remains unclear how much relief a limited quota agreement would provide to car manufacturers if Trump rejects this proposal.

Brussels, on the other hand, is hopeful that Trump’s long-standing desire for the EU to align with US automotive regulations will serve as a strong enough bargaining chip to ease the pressure on the auto sector.

In a scoping paper sent to member states in May, the Commission revealed it had offered to align with US regulations on autonomous vehicles. This is seen as a major concession, especially after similar discussions on automotive reciprocity led to the collapse of a transatlantic trade deal a decade ago.

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