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Friedrich Merz prioritizes economy over climate in Germany

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Friedrich Merz, the politician likely to become Germany’s next chancellor, has vowed to restore Germany’s industrial competitiveness by putting climate policy on the back burner.

In a campaign speech in the western industrial city of Bochum on Monday, Merz, leader of the CDU, stated that Germany’s economic policies under Chancellor Olaf Scholz had been “almost entirely oriented towards climate protection.” He added, “I want to say this clearly: We will and must change that.”

Germany’s traffic-light coalition government, which collapsed in November over differences of opinion on spending and economic reforms, had pledged to “ideally” phase out coal by 2030, eight years ahead of the official target date. To achieve this goal, the coalition, which included Scholz’s Social Democratic Party (SPD) and the Greens, greatly expanded renewables and subsidized energy-intensive companies to help them achieve climate neutrality.

As a result, Germany is the European Union’s industrial leader in the production of green infrastructure, with the largest number of plants for solar and wind technology. In heat pump production, it has the second-largest number of plants, behind Italy.

However, Merz suggested that he would radically change course. Referring to both coal and nuclear power during his speech, he argued that they had “agreed enough” in recent years on which energy source to phase out, but that decommissioning was out of the question unless there was “something to replace it.”

“If we continue to do so, we would greatly jeopardize Germany as an industrial center, and we are not prepared to do that,” Merz said.

Merz and his conservative alliance CDU-CSU are likely to win the early elections on 23 February, with 31 percent support in the polls. The right-wing Alternative for Germany (AfD) party is in second place with 21 percent support. However, since Merz has closed the door to an alliance with the AfD, he may have to form a coalition with the SPD and the Greens, who oppose his economic policies.

During his visit to Bochum, Merz also expressed skepticism about the previous government’s focus on “green steel”—steel mills powered by hydrogen from renewable energy—and told a panel that he “does not believe that the rapid transition to hydrogen-powered steel mills will be successful.”

ThyssenKrupp, once the national steel giant, received around €2 billion in state subsidies in 2023 to accelerate its shift away from CO2-emitting production by replacing its coal-fired steel furnaces with new hydrogen-fired ones.

In Bochum, Merz proposed carbon capture instead of completely avoiding emissions from steel mills with hydrogen. His main concern with hydrogen from renewable sources is cost. However, experts warn that carbon capture, an electricity-consuming technology, also has a high price tag and is not yet available on the scale needed to decarbonize the steel industry.

Robert Habeck, the Greens’ candidate for prime minister, disagreed with Merz’s comments about hydrogen-powered steel mills. “No one should believe that coal-fired electricity and coal-powered steel still have a chance on the world market,” Habeck told reporters on Tuesday.

SPD leaders also criticized Merz. Anke Rehlinger, premier of the southwestern state of Saarland, where the steel industry is a key sector, told the German daily Stern that anyone who wanted to back down now would destroy billions of euros in investments and tens of thousands of jobs.

Europe

EU revives offer for US gas after tariff pause

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The European Union will revive an offer to buy more American gas, believing that US President Donald Trump is more open to negotiation after pausing the tariffs that have shaken the economy.

The EU plans to reopen talks to increase liquefied natural gas (LNG) purchases from the US and offer specific proposals to address Trump’s anger over transatlantic trade, according to three European officials familiar with the discussions who spoke to POLITICO.

Specifically, the officials said that the EU is looking for ways to aggregate demand to allow the continent to place larger, Europe-wide orders—but ideally at more competitive prices—to meet the White House’s demands.

The EU has been trying to make contact with the Trump administration on this issue for months, but diplomats claim they have encountered confusion and disinterest in Washington.

But allegedly, the situation has now changed: markets are collapsing, and business leaders are begging Trump to change tactics.

“These proposals have been on the table for some time, but we hope there is now an opportunity to make progress,” one of the officials said.

Since his election last November, Trump has repeatedly insisted that the EU buy more American oil and gas to avoid a trade war.

The President has also said that the EU needs to spend an additional $350 billion on American energy to offset what he sees as a “persistent trade deficit.”

Late Wednesday, Trump announced a 90-day pause on most global tariffs, insisting that America’s partners now negotiate to eliminate trade barriers.

The EU sees this as another opportunity to promote its LNG offer. Officials have openly expressed their desire to consume more American fuel, viewing it as a way to finally break all energy ties with Russia.

“In the future, we will buy more gas from the US,” said EU Energy Commissioner Dan Jørgensen at an industry event on Tuesday, stressing that these purchases must be in line with the bloc’s “green transformation” goals.

On the other hand, it is unclear how well a demand aggregation plan will work because, ultimately, companies, not governments, will make these purchases. The EU launched a similar system after the war in Ukraine, hoping to lower very high prices, but ultimately, very few companies participated.

Still, pooling orders from private suppliers and matching them with American suppliers is one way for the bloc to obtain larger volumes of US LNG.

Concerns about LNG prices are also casting a shadow over the talks.

The EU requires countries to fill their fuel storage tanks to 90% of capacity by November 1 each year, and capitals are concerned that the cost of rushing to buy supplies, most of which are American, during the summer will increase costs.

EU countries are trying to relax these rules, hoping that this flexibility will allow them to spend less on LNG.

On Thursday, European Commission President Ursula von der Leyen warned that the EU would respond in kind if tariffs were reimposed, but for now, “We want to give negotiations a chance.”

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EU and UK defense ties strengthen amid global concerns

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The global turmoil caused by the Donald Trump administration is deepening the EU’s resolve to sign a defense and security agreement with the UK, which will allow British arms companies to participate in joint weapons procurement.

Trump’s threats not to protect NATO allies and his overtures to Russia are giving European countries an excuse to collectively rearm and increase defense spending. This is leading to discussions on how best to combine capabilities to “protect” Ukraine after a possible US-brokered peace deal.

A “coalition of the willing,” led by France and Britain, has paved the way for an agreement to be signed at the EU leaders’ summit next month, hosted by UK Prime Minister Keir Starmer, marking the first such gathering since Brexit.

An EU diplomat told the Financial Times (FT), “On defense, the Brits are basically back inside the tent. We just need this agreement to confirm it.”

As EU ambassadors met on Friday to prepare for this summit, four diplomats said that a majority of capitals wanted the defense and security agreement to be signed, along with a broader statement on geopolitical issues.

The European Commission has made such a document a prerequisite for the UK’s participation in the €150 billion loan program that governments can use for military procurement.

As a sign of close coordination, UK Defense Secretary John Healey co-hosted a “coalition” meeting in Brussels last week with his French counterpart, followed by a military supply meeting for Ukraine in Germany with his German counterpart.

At the same time, UK Finance Minister Rachel Reeves joined EU finance ministers in Warsaw over the weekend, seeking “deeper defense finance cooperation with our European allies.”

EU capitals also aim to finalize two more agreements with the UK, covering issues such as energy, migration, and fisheries. The latter is a contentious issue for France, Denmark, and other coastal EU countries that want to maintain access to UK waters after the current agreement expires in 2026.

France’s position, reiterated during the EU ambassadors’ meeting on Friday, is that any UK pressure to renegotiate the level of EU access to British fishing waters would overshadow broader negotiations, including defense.

Another EU diplomat said, “War, Trump, and European rearmament are bringing France and Britain closer. But we need goodwill on other issues to bring the EU and UK closer.”

Diplomats noted that both Paris and London are under pressure to find a compromise, with other capitals arguing that it would be “ludicrous” for a politically sensitive but economically insignificant issue like fishing rights to prevent closer cooperation on an “existential issue” such as European security.

The first EU diplomat told the FT, “While the French are looking at this with a magnifying glass, everyone else just sees the big and obvious strategic benefit.”

Denmark, another EU country with a strong fishing industry, said it is “always open” to closer cooperation with countries outside the European Union.

Economy Minister Stephanie Lose told the FT, “We know that we have close ties with Norway and the UK, so we should of course be open to exploring other things that can help strengthen Europe.”

Under the €150 billion program, governments will receive loans supported by the EU’s joint budget to finance the joint procurement of critical weapons, such as air and missile defense systems.

The defense agreement will allow the full participation of British defense companies, many of which have close ties with Italian, German, Swedish, and other EU defense industries.

Diplomats said that European Commission President Ursula von der Leyen and EU Council President António Costa, who represents the bloc’s governments, support closer cooperation with Britain.

EU Economy Commissioner Valdis Dombrovskis said, “To strengthen European defense, we need to do many things within the EU, but also many things outside the EU, so we are open to this engagement.”

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Germany warns against tariff retaliation targeting Big Tech

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Germany and other European countries have warned against Brussels hitting Big Tech should trade negotiations with the Trump administration fail in the coming months.

Earlier this month, US President Donald Trump said he would impose a “reciprocal tariff” of 20% on all imports from the EU, before reducing that to 10% over a 90-day period.

European Commission President Ursula von der Leyen told the Financial Times (FT) in an interview that Brussels was preparing retaliatory measures should those talks fail, including a possible tax on digital advertising revenues that would hit tech groups such as Amazon, Google and Facebook.

But Germany warned against such a move on Friday. “We need to be careful about digital companies because we don’t have a real alternative to what the American digital industry is offering,” said Jörg Kukies, Germany’s Finance Minister, referring to data centers for cloud services and artificial intelligence.

Speaking ahead of a meeting of European finance ministers in Warsaw to discuss the economic impact of trade tensions, Kukies noted that there were sectors where it was more difficult to substitute other services and goods from other parts of the world, just as there were products where it was easy.

Kukies said the bloc needed to prepare retaliatory measures, but argued they needed to be “nuanced and differentiated.”

The EU has suspended retaliatory tariffs on US goods such as yachts, motorcycles, clothing and foodstuffs for 90 days in an effort to allow talks to conclude.

Those tariffs were introduced in response to Trump’s 25% tariffs on European steel and aluminum, which are still in place.

France and several other EU member states support von der Leyen’s decision to prepare retaliatory options against US service companies, according to people with knowledge of the discussions between capitals, the FT reported. But countries with a large US tech presence, such as Ireland and Luxembourg, are more hesitant.

“We have said that everything is on the table. Among the measures we could take, there are measures concerning the digital industry. It is one of the elements on the table,” France’s Finance Minister Eric Lombard told the FT. He added that no measure had yet been decided and that the first objective was “to reach a deal with the Americans.”

France’s President Emmanuel Macron has also raised the possibility of hitting digital services, an area where the US has a large surplus with the EU, unlike trade in goods.

“It is clear that when we discuss the response to trade, we also need to look at trade in services, including digital services,” EU economy commissioner Valdis Dombrovskis said on Friday.

Poland’s Finance Minister Andrey Domanski, who chaired the talks in Warsaw, called on the bloc to “stand united” and said “We would prefer to first hear the official proposal of the Commission and then comment.”

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