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Germany’s business model has disappeared, Merz says

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On February 23, CDU leader Friedrich Merz, who is expected to become the new chancellor of Germany after the early federal elections, spoke to The Economist.

Merz, who argued that Germany’s “business model” that marked the 2000s no longer exists, said that Europe must change in order not to fall behind the US and China in innovative sectors such as artificial intelligence.

“We have to do serious work on this bureaucratic burden,” said the CDU leader, signaling that he would wage war on the bureaucracy in Berlin and Brussels, and listed a series of directives and regulations, including detailed due diligence reporting standards that German business leaders hate.

“We should concentrate our public spending on, for example, the labor market,” Merz said, adding that he would then take the axe to the “social welfare system” so that “people who don’t want to work don’t have to pay for it.”

He remains convinced of the export-oriented model

Merz, who said that “at least 50 natural gas power plants should be built” on energy, which is one of the important problem items of German industry, said that there would be no return to Russian gas “for now” and that he was “absolutely” willing to enter into long-term contracts for relatively more expensive American liquefied natural gas (LNG). Merz also stated that a return to nuclear energy is also possible in Germany, pointing out that he is considering new nuclear reactors.

Asserting that the €460bn ($474bn) federal budget “has a lot of room for change,” Merz said he was open to discussing the loosening of the constitutional debt brake, which limits the federal government’s structural deficit to 0.35% of GDP, but emphasized that this was “not their first approach.”

Insisting that German industry was still strong, Merz insisted that his country’s export-oriented model could “absolutely” survive, despite the world’s turn towards protectionism and the imminent imposition of tariffs by the US on the EU.

Proposal for unequal sharing of sovereignty and the single market

When it comes to European politics, Merz promised to revive the “Weimar Triangle” with France and Poland, said he would like to work on joint projects in the fields of artificial intelligence and quantum computing as well as military co-operation, and hoped to work “very closely” with Italy’s right-wing prime minister Giorgia Meloni.

More fundamentally, Merz supports the idea of a European organization of “concentric circles,” first proposed in the 1990s by Wolfgang Schäuble, a leading CDU figure and Merz’s political mentor, in which some countries are at the center of integration while others share less sovereignty and benefit less from the common market.

“Being completely in or completely out should not be the right answer,” he said, referring to the UK’s relationship with the EU.

The CDU leader said he believes that in order to avoid Brexit, greater concessions on the free movement of people should be made in good time.

‘My task is not to make Trump happy’

As for Donald Trump, Merz claimed that the American president’s transparent, transactional approach meant that negotiating with him would be “very easy.”

Brussels should respond to Washington’s threat of tariffs on EU exports, as it did in 2018 during Trump’s first term, with a targeted response that would “inflict enough pain to concentrate minds,” he said.

On defense spending, he was reluctant to commit to higher figures, recognizing that it would be hard enough to meet NATO’s base of 2% of GDP when a special fund expires in 2028, but conceded that in the long run “it has to be more.”

Asked what he would do if the US insisted that Germany move faster, the CDU leader replied: “It is not my job to make President Trump happy.”

Meanwhile, Merz also downplayed calls from EU partners for changes to fiscal rules to allow for more defense spending or even joint borrowing, saying: “Let’s be very skeptical and critical about this. I don’t see it in the foreseeable future,” he said.

Merz is cautious on the Ukraine issue

The deployment of peacekeepers to Ukraine “could be an option,” but “only after a credible ceasefire,” Merz argued, stressing that “a country at war is not a potential NATO member” in relation to the security guarantees demanded by Kiev.

He admitted that, if asked, he “would like to see Ukraine as a peaceful country in NATO,” but added that it was “too early” to consider accepting a country that did not have full control over its territory, at least until the United States clarified its policy.

Nevertheless, Merz emphasized that he was in favor of the US proposal to use frozen Russian assets to help Ukraine.

Single market, but only for Germany?

Despite his fervent support for EU proposals to facilitate capital flows in the single market, Merz rejected as “extremely unfriendly” the proposed takeover of Commerzbank, one of Germany’s largest lenders, by Italy’s UniCredit.

Far from defending Germany’s national champions, Merz’s eagerness to inject a bit of American-style crony capitalism into Germany’s dazed model is genuine, according to The Economist.

During his decade in the private sector, he remains particularly comfortable in boardrooms, where he was chairman of the German arm of asset manager BlackRock, during which time he became a multimillionaire.

Merz left politics in the 2000s after Angela Merkel’s CDU defeated him in the struggle for power, but when Merkel resigned as party leader in 2018, Merz shocked the political world and ran for office.

When it comes to relations with the AfD, Merz seems relaxed. According to him, if the economy and irregular migration improve, the AfD will shrink and reach a point where it will no longer be in parliament (less than 5% of the vote).

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Scholz comments on İmamoğlu’s detention

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German Chancellor Olaf Scholz made a statement regarding the detention of Istanbul Metropolitan Municipality Mayor Ekrem İmamoğlu.

According to DW Türkçe, Scholz, speaking at the beginning of the summit that brought EU leaders together in Brussels on Thursday, said, “Allow me to address an issue that is very important to me on a current occasion. In recent years, we have made great efforts to further develop relations between Europe and Türkiye. In this context, the detention of Istanbul Mayor Ekrem İmamoğlu, a centrally important opposition politician, is a very, very bad sign.”

“This development is upsetting for Turkish democracy as well as for the relations between Europe and Türkiye,” Scholz said, calling on Türkiye to allow a policy where “the opposition and the government are in competition” and “the opposition is not held accountable in the judiciary.”

Scholz later shared these words in English on his personal social media account.

Yesterday, the German Foreign Ministry also stated about the detention of İmamoğlu and his colleagues, “It is a heavy blow to democracy in Türkiye. Protecting the rights of the people’s elected representatives is an important part of supporting the rule of law.”

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French defense industry gears up for war amid EU strategic autonomy push

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The French defense industry is beginning to ramp up more than three years after the war broke out in Ukraine, and as the European Union seeks to build its strategic autonomy.

Today (March 20), Armed Forces Minister Sébastien Lecornu and Economy Minister Éric Lombard will make a highly symbolic visit to inaugurate the new facility of the Eurenco group.

The facility in Bergerac will move the production of 1,800 tons of heavy weapons gunpowder per year from Germany, Italy, and Sweden to France. The company claims it has doubled its sales since 2022 and that its order books are full until 2029.

France’s defense budget, which is 50.5 billion euros this year, is projected to reach 67.5 billion euros in 2030. President Emmanuel Macron has repeatedly stressed that the entire sector should expect a “significant” increase in public orders. This is welcome news for French defense manufacturers, even if the funding issue is far from resolved.

“In November 2021, the Ministry of Defense contacted me to produce ammunition for special forces,” Olivier Lacreuse, President of Plubeau & Cie, told Euractiv.

The company, based near Belfort, initially specialized in precision metalwork for the railway industry and sporting ammunition.

Lacreuse says, “Two models of our ammunition have been approved, and we opened our new factory last Monday, but I am still struggling to secure my raw material supply. I import my cartridge cases from the US, but I am looking for suppliers in France due to the current geopolitical instability.”

Jean-Michel Jacques, a member of Ensemble pour la République (Together for the Republic) and Chairman of the National Assembly’s Defense and Armed Forces Committee, said that the development of France’s defense industry depends on better communication so that companies are “aware” of the needs of the Armed Forces Ministry.

The increase in defense spending is also expected to accelerate the transformation of struggling sectors such as the automotive industry. The Fonderie de Bretagne foundry in the Lorient region, which produces spare parts for Renault and faces bankruptcy, will be taken over by the French Europlasma group. The company plans to produce 24,000 metal casings for artillery shells every day at the facility.

France’s defense industry can also count on its exports, which reached 18 billion euros in 2024, its best result except for 2022.

Increased conflicts worldwide and rising tensions with the US may encourage new buyers to invest in French military equipment.

Sales of Rafale fighter jets, submarines, drones, missiles, and Caesar howitzers naturally benefit major manufacturers such as Dassault Aviation, Safran, and Thales, all of which announced strong profits in 2024, but many small and medium-sized enterprises are also signing contracts abroad.

For example, RTSYS, a company specializing in underwater acoustics and robotics, generates approximately 90% of its revenue from exports to Europe and Asia.

“We expect strong growth in our business in the coming years. With rising tensions in the South China Sea and the recent attacks on Baltic Sea cables, everyone realizes that underwater infrastructure needs to be monitored,” the company’s director, François-Xavier de Cointet, told Euractiv.

Following the European Commission’s announcement of a plan to raise 800 billion euros through loans and debt for defense, French MP Jacques said that French defense companies should coordinate at the continental level.

“The production of new weapons being coordinated at a continental level will help the growth of French industry, contrary to what some people think. We can easily imagine French groups setting up factories in other European countries, just as foreign companies can establish themselves in France,” Jacques said.

For now, the European defense industry and technology base accounts for 33% of global arms exports, including American companies that manufacture in Europe.

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Germany amends constitution to allow increased armament

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The German Federal Parliament (Bundestag) has passed a bill proposing an amendment to the constitutional debt brake to pave the way for armament.

In the vote requiring a two-thirds majority, 512 members of parliament voted in favor, while 207 opposed, with no abstentions.

The amendment was made possible after the CDU/CSU and SPD brought the bill to parliament, and the Greens also approved it. If the vote had been held with the Bundestag composition from the early elections on February 23, the amendment would not have passed due to likely objections from AfD and Die Linke.

Now, the Federal Council (Bundesrat) will also need to approve the amendment on Friday. A two-thirds majority is also required in the state parliaments. The states where CDU/CSU, SPD, and the Greens are in government together hold 41 of the 69 votes in the Bundesrat.

However, Free Voters leader Hubert Aiwanger has already given up opposing new borrowing, so Bavaria will vote in favor of the Federal Constitutional amendments on Friday. Thus, the majority will be secured.

During the discussion of the bill, Johannes Fechter of the SPD defended the urgency to make the amendment, arguing that quick decisions are now necessary due to the “situation in the world.”

Fechter claimed that the new Federal Parliament could only take action “in a few months” and emphasized that the members of parliament had enough time to discuss the constitutional amendment.

Fechter accused those who criticized the plan of being “extensions of Putin.”

AfD parliamentary group secretary Bernd Baumann made harsh criticisms in his speech and said that the CDU/CSU prevented experts from being heard in the budget commission.

Baumann accused Federal Parliament President Bärbel Bas of the SPD of deliberately delaying the gathering of the new Federal Parliament and accused CDU leader Merz of wanting to buy power with new debts, “as in banana republics.”

The AfD member, arguing that the CDU/CSU had retreated from all election promises, said that the votes were rigged and the voters were deceived.

CDU/CSU parliamentary leader Thorsten Frei insisted that everything was “legal,” arguing that the old Federal Parliament composition was “fully capable of taking action.”

Greens representative Irene Mihalic emphasized that they were not in favor of the quick decision-making procedure in the old Federal Parliament, while accusing the AfD of “using procedural rules to divide the parliament” and argued that it was important for “democracy to remain resistant to the AfD.”

Christian Görke from the Left Party (Die Linke) spoke of a situation that was “unworthy of parliamentary procedure.” Görke said that it was a scandal for the Federal Parliament to make such decisions and argued that all of this was “disrespectful to the state.” The Left Party, directing harsh criticism at the Greens, claimed that “they allowed themselves to be bought for a few billion euros.”

Speaking on behalf of BSW, Jessica Tatti announced that she would vote in favor of the AfD’s motion to remove mass debts from the agenda. While BSW did not submit its own motion, Tatti accused the Left Party of refusing to quickly convene the new Federal Parliament session with the AfD to block the constitutional amendment.

After procedural discussions, the speeches of the “heavyweights” began. SPD leader Lars Klingbeil was the first speaker, mentioning a “historic decision that could show a new direction to the country.”

Claiming that peace in Europe was once again in danger, Klingbeil emphasized that Germany stood by Ukraine.

However, pointing out that the situation had recently deteriorated significantly, the SPD leader said that Germany now had to do its “homework” and stated, “We will do everything we can to protect peace.”

Arguing that the debt brake had made management very difficult in recent years, Klingbeil said that there was now a “historic compromise” to solve this problem.

Klingbeil emphasized that it was a correct signal to show that the “democratic center” could take action, while pointing out that the bill was the largest financial package in the history of the Federal Republic.

“These investments will make our country stronger,” said the SPD leader, suggesting that the majority of Germans would be relieved by the debt package.

Later, CDU leader Friedrich Merz emphasized that there were no “new national goals” in the Federal Parliament: Natural resources have already been protected in the Constitution for 30 years, including “climate neutrality.”

Showing the war in Ukraine as the reason for easing the debt brake, Merz argued that this was also a war against Germany, emphasizing that he would always defend himself against attacks on the “open society.”

Merz emphasized that he wanted to supply the German Armed Forces (Bundeswehr) with numerous “modern systems” and obtain them from the EU as much as possible, while describing joint borrowing as the “first step” towards a European defense community. The CDU leader also defended “private assets” for infrastructure.

Saying that he wanted “the reduction of bureaucracy” and a state that could move, Merz argued that this would be a good justification for new debts and announced that he would vote in favor of the constitutional amendments today with a “clear conscience.”

Speaking on behalf of the Greens, Britta Haßelmann attacked the Left Party, saying that they did not face the realities in Europe. “Stop slandering the Greens at this point,” said Haßelmann, claiming that the Greens “could not be bought.”

Claiming that the Left Party now had to explain to the citizens “why they were against civil defense,” Haßelmann also addressed Merz directly, saying that “democratic parties” had to regain the public’s trust.

On behalf of the AfD, party and parliamentary group leader Tino Chrupalla spoke. He pointed out that the CDU/CSU and the traffic light coalition had agreed to allow the old Federal Parliament to make important decisions for months.

Pointing out that they were now using the old majorities because they did not have a majority in the new Federal Parliament, Chrupalla said, “What a great show they are putting on for us here.”

Arguing that voters felt betrayed by Merz, the AfD leader said that the CDU leader was only interested in the chancellorship, shouting, “You have no backbone.”

Chrupalla stated that the “special fund” instrument was misused without a need being identified.

Taking the floor, SPD Defense Minister Boris Pistorius argued that advancing German defense was “the order of the day.” Pistorius referred to the changing threat situation due to the war in Ukraine and the US’s focus on the Indo-Pacific region and said, “Our responsibility is increasing, and the burden we have to bear as Europeans is also increasing.”

Saying that Germans would have to play a central role in this regard, the minister said, “This means more soldiers, more equipment, faster operational readiness. In short, the financial needs for this will increase significantly.”

Arguing that this was “about the safety of our children and grandchildren,” Pistorius claimed, “The threat situation comes before the cash situation.”

AfD honorary chairman Alexander Gauland also took the floor and made “a few personal statements.” Reminding that he had previously been involved in politics in the CDU and had been in the same party with Merz for a long time, Gauland argued that the current CDU leader was “a victim of Merkel’s desire for power.”

Noting that he hoped that Germany would have a center-right policy with Merz’s leadership, Gaulan argued that instead, Merz had sacrificed “everything that was still conservative or bourgeois [bürgerlich]” in the CDU.

Predicting that Merz would fail just like the traffic light government, the AfD member said that the likely chancellor only had “yesterday’s answers for tomorrow’s problems.”

Arguing that a real turning point could only be experienced with the AfD, Gaulan said, “As of this week, the Merz CDU is a continuation of the Merkel CDU.”

AfD politician Michael Espendiller said, “The defense budget should also be financed from the normal budget.”

Arguing that the problem was not money but the waste of money, Espendiller reminded that the protection of Bundeswehr barracks only by private security services costs billions of dollars a year and stated that defense projects regularly cost much more than expected.

According to the AfD member, there is a “mentality” in the defense sector as it was 50 years ago, and Germany does not have a revenue problem but a spending problem.

BSW leader Sahra Wagenknecht criticized “climate-labeled war loans,” comparing the ‘CO2 footprint’ of tanks and small cars.

Accusing Merz of pursuing a policy that brings the AfD even closer to an absolute majority because he does not want to talk to the AfD, Wagenknecht accused the CDU leader of “adding fuel to the fire” in the Ukraine war.

Arguing that Germany was now on the way to becoming an “economic dwarf,” the BSW leader complained about “systematic counting errors” against her party in the Federal Parliament elections and argued that if a recount was not carried out, the parliament would lack democratic legitimacy.

At the end of Wagenknecht’s speech, BSW deputies unfurled banners. The banners read, “Not 1914, 2024. NO to war loans.”

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