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).