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.”

French Economy and Finance Minister Eric Lombard suggested countering US President Donald Trump’s tariffs by more strictly regulating the data usage of US Big Tech companies.

Lombard stated in an interview with Le Journal Du Dimanche, “We could strengthen certain administrative requirements or regulate the use of data.”

Lombard added that another option, without being more specific, could be to “tax certain activities.”

A French government spokesperson said last week that the EU’s retaliation against US tariffs could include “digital services that are not currently taxed.”

This proposal has been strongly rejected by Ireland, which hosts the European headquarters of many major US tech firms.

European Commission President Ursula von der Leyen has vowed to retaliate against Trump’s trade war.

Technology is seen as a likely area for Europe to retaliate. The European Union has a 157 billion euro surplus in goods trade, meaning it exports more than it imports, but a 109 billion euro deficit in services, including digital services.

Major tech giants like Apple, Microsoft, Amazon, Google, and Meta dominate many parts of the market in Europe.

Lombard said on Friday that a trade war with Washington could prevent France from reducing its bloated budget deficit. “Tax revenues will probably fall, and then GDP will fall according to forecasts, which will worsen the deficit even more,” Lombard said in an interview with BFMTV/RMC.

French Prime Minister François Bayrou said on Sunday that Trump’s tariff offensive would reduce France’s GDP by more than 0.5%.

“The risk of job losses, such as economic slowdown and the cessation of investments, is also definitely very high. The consequences of this will be significant: Trump’s policies could cost us more than 0.5% of GDP,” Bayrou said in an interview with Le Parisien.

Tens of thousands of people participated in a protest march in Rome on Saturday, led by the Five Star Movement (M5S), against the European Union’s proposed rearmament plan. Recent polls indicate that Italians are among the least enthusiastic populations in the EU regarding increasing defense spending.

Organizers claimed that participation exceeded 80,000, with some estimates approaching 100,000.

The rally followed a similar demonstration last month in Strasbourg, where M5S members of the European Parliament (EP) staged a protest in front of the EP building.

M5S leader and former Italian Prime Minister Giuseppe Conte strongly criticized both the EU initiative and Prime Minister Giorgia Meloni’s support for it. Conte described the defense package as “madness” and accused Meloni of supporting the plan without a democratic mandate.

M5S was not alone in the streets. Delegations from other opposition parties, including the center-left Democratic Party and the Green-Left Alliance, also participated in the demonstrations.

Their message appears to reflect broader public sentiment. According to a recent poll by Euractiv, Italians are among the least supportive in the EU when it comes to increasing defense spending.

The poll, conducted in March, indicated that Italy (49%) was the least supportive country in increasing spending, compared to other major European economies such as Germany (79%), France (76%), and Spain (76%).

Among Italians who opposed the increase, 14% said that EU member states should reduce their defense investments, while 37% remained against any increase.

When asked whether they would agree to send soldiers to Ukraine as part of a peacekeeping operation after the war ends, 45% of participants supported such a move, while 35% opposed it.

Here too, Italians were the least supportive (35%) of deploying European troops to Ukraine, compared to Germany (41%), France (45%), and Spain (64%). Italian Prime Minister Giorgia Meloni had distanced herself from the Franco-British initiative earlier this month.

Nevertheless, the demonstration drew criticism. Deputy Prime Minister and Foreign Minister Antonio Tajani questioned the Five Star Movement’s credibility on the issue, pointing out that defense spending increased during Conte’s time in office.

Tajani said, “I don’t understand what M5S wants. They talk about peace, but when Conte was in government, he allocated more money to the military.”