Merz Won The German Election. Here’s What It Means For Europe.

BRUSSELS ― Conservative leader Friedrich Merz won the German election Sunday and is on track to take the reins of the EU’s largest economy.

It’s not yet clear exactly what the new German government will look like — or how far Merz will be able to reshape German politics as he sees fit. It’s likely to be weeks before coalition talks between Merz’s Christian Democratic alliance (CDU/CSU) and other parties reach an agreement and Merz becomes chancellor.

Still, one thing looks certain: Merz will take Germany in a different direction from that of current Chancellor Olaf Scholz. It may not even look like the Germany that Angela Merkel, also of the CDU, led for 16 years, until 2021.

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Last month, Merz (unsuccessfully) pushed the German parliament for new migration measures with the support of the far-right Alternative for Germany party. It marked a clear departure from Merkel’s “Wir schaffen das” pledge to take in refugees.

And there’s more. From a potential U-turn in Germany’s long-standing policy on nuclear energy and a more hawkish line on China, to plans to reboot the German-French axis to bolster EU trade, Merz could shake up the political landscape of Germany and, in one fell swoop, that of the European Union as a whole.

Here’s what a Merz-led Germany means for the EU.

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Defense

Two days before the election, Merz issued a stark warning that Europe must be prepared to defend itself without the U.S. “We must prepare for the possibility that Donald Trump will no longer uphold NATO’s mutual defense commitment unconditionally,” Merz said in an interview with a German broadcaster, signaling that Germany may seek nuclear protection from European allies.

“We need to have discussions with both the British and the French — the two European nuclear powers — about whether nuclear sharing, or at least nuclear security from the U.K. and France, could also apply to us,” he said.

Elsewhere, Merz has promised big and broad policies to scale up Germany’s defense industry, and will be expected to follow through quickly on an earlier pledge to scrap his predecessor’s block on the dispatch of long-range Taurus cruise missiles to Ukraine for strikes on Russian targets.

A major theme of his early weeks in the chancellery will be setting out how Berlin plans to raise the cash to expand on the €100 billion fund agreed under the Scholz government to finance an upgrade of the Bundeswehr’s gear and digs.

That cash pot has been allocated and will be spent up by 2027 on massive procurement programs, raising questions over how Berlin plans to meet its obligations to NATO — which Merz has promised to do in the future — from the conventional national budget.

“The 2 percent target may be pushed up again and then we will have to prepare ourselves for that,” Merz told POLITICO’s Berlin Playbook podcast of plans to further raise the NATO target given Trump has called for a 5 percent target.

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Energy

Over the past few years, German energy policy has focused on turbocharging investment in renewable energy, shutting down nuclear reactors and scrambling to secure gas supplies from abroad to replace Russian imports. 

Merz’s CDU has similarly vowed to “consistently use renewable energies, all of them.” But his political family, the center-right European People’s Party, is also pushing back against EU green energy targets.

Meanwhile, Merz has taken a warmer tone toward nuclear energy than Scholz, which is challenging a long-standing German taboo around atomic power. While the country is unlikely to revive its shuttered reactors, a more lenient nuclear stance from Berlin could help pro-atomic countries persuade Brussels to treat atomic power more like renewables. 

Merz has also said he wants to repeal Germany’s hard-fought Building Energy Law, which aims to accelerate a clean heating rollout — offering a potential signal to green skeptics in Europe. 

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Climate

A Merz-led government will place less emphasis on climate change than Scholz’s coalition. Merz expressed concern on the campaign trail about the impact of climate policy on business, vowed to put economic growth above all other concerns and led a call to roll back several EU green regulations.

But green advocates express confidence that in government Merz’s rhetorical hammer will turn feather duster. Industry, broadly, wants less bureaucracy, but it also wants consistent policy. Industrial stimulus can be used to help companies become greener and more efficient. “That they will not do it in the name of climate policy. Fine. If it’s economic policy for them. Fine,” said Linda Kalcher, executive director of the Strategic Perspectives think tank.

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Sustainability

Merz, like Scholz, wants to delay key corporate sustainability reporting rules to boost Germany’s ailing industry.

That means it’s pretty much assured that Germany under Merz would back a strong omnibus simplification bill for green rules, a proposal the European Commission is expected to release on Feb. 26.

A Merz victory also means the center-right European People’s Party, which dominates the European Parliament and is Merz’s political family, once again has a powerful ally in the EU’s biggest economy. Already, the EPP has pushed hard to water down the EU anti-deforestation rule with the support of groups further to the right (mostly without success thus far).

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Mobility

Merz is inheriting an economy in recession that is being further dragged down by a crisis engulfing its automotive sector. He recognizes the problems: high energy and labor costs, and stiff competition in the electric vehicle transition. But he’s been light on the details of how he intends to help automakers.

In campaign speeches, he promised to cut red tape and reduce high costs but stopped short of putting support behind reforming Germany’s debt brake, which will keep Merz’s hands tied when it comes to funding such initiatives.

Germany’s carmakers are highly dependent on the Chinese market, which led Scholz to acquiesce to Beijing’s wishes, such as lobbying against the made-in-China EV duties. Merz will take a harder line with China and has made clear to automakers that they should not come crawling to him if their Asian investments blow up.

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Trade

Taking a stronger line on Russia and China and rekindling old friendships with fellow EU leaders: Merz has his work cut out for him if he wants to link the German export economy to global growth hot spots like the Mercosur countries, Mexico or Southeast Asia.

Merz recognizes that a functional Franco-German axis can create more trade deals, more certainty for companies and — eventually — a stronger Europe. “We have to overcome our dispute on Mercosur,” Merz told the World Economic Forum in Davos last month, saying he was in regular close contact with French President Emmanuel Macron.

The Christian Democrat has also signaled a harder approach to China. Or, at least, he’s admitted the German economy is too dependent on Beijing’s woes and wishes. But just how hawkish Merz’s approach to trade will end up being is likely to be determined by who he ends up with as a coalition partner.

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Agriculture

A victory for Merz’s CDU means Berlin will align on agricultural policy with both the largest political bloc in the European Parliament — the European People’s Party led by Bavarian Manfred Weber — and EU Agriculture Commissioner Christophe Hansen.

Ahead of negotiations over the future of the EU’s Common Agricultural Policy, Hansen has launched an overhaul of farm policy that would effectively roll back the green agenda of the last term and instead emphasize making farming a more attractive and economically viable occupation. In its campaign platform, Merz’s CDU said it wants a CAP “that serves farmers.”

Scholz’s center-left government pushed initiatives to support organic farming and reduce food waste. But it clashed with farmers a year ago over its decision to scrap tax breaks on agricultural diesel. The CDU said it will reinstate the diesel tax break and take broader action to strengthen planning security for farmers. “With the CDU, no farmer will have to protest with his tractor in front of the Brandenburg Gate anymore,” the party said.

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Central banking

Merz’s chancellorship will mark the return of conservative opposition to meddling with Germany’s notorious debt brake, which limits government deficit spending to 0.35 percent a year and is seen by many as the cause of the shoddy state of the country’s infrastructure. 

Scholz’s efforts to tamper with the brake caused the collapse of his government, and Merz’s CDU faction is fiercely opposed to any reform — up to a point. Surprisingly enough, Merz himself, during a TV debate earlier this month, intimated openness to some fine-tuning, but not before other solutions are tried. Timid, yes, but revolutionary from a Christian Democrat. 

Otherwise, financial markets are broadly skeptical that Merz can do much to stall Germany’s well-documented economic decline, with gross domestic product expected to contract 0.5 percent in 2025. During the race, the choice between the two parties’ economic policies was ultimately “superficial,” ING Global Head of Macro Carsten Brzeski lamented in a note earlier this month, noting that Merz’s plans for tax and spending cuts reflected an almost spiritual faith in free markets — the very same markets that have dealt such a humiliating blow to Germany’s economic prestige. 

Merz will also have critical sway over the outcome of a major transnational banking battle that could put EU ideals to the test. When Milanese lender UniCredit made its surprise bid on Germany’s Commerzbank last year, it looked like exactly the kind of cross-border banking consolidation that Mario Draghi was advocating in his landmark report — until Scholz’s government reacted with horror and dreamed up wild schemes to block it. UniCredit CEO Andrea Orcel has since said he will wait on Merz’s position before making another move, but it’s hard to imagine the new leader will be any more keen to give away one of the country’s most prized lenders. 

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Financial services

Merz holds the keys to significantly boosting Europe’s defense capabilities in the years to come. As Trump pressures Europe to pony up military spending, many in Brussels are anxiously waiting for Germany to give its blessing for the European Commission to borrow money on behalf of member countries. Highly indebted countries such as France, Italy and Spain who fall short of NATO’s defense spending target argue that receiving “free money” from Brussels is the only way for them to drastically increase military spending without making politically unpopular cuts to other budget areas. 

Merz warmed to this idea during the election campaign — and supporters hope that his backing will defeat opposition from frugal allies such as Austria and the Netherlands. There are many less controversial ideas on the table, such as exempting defense from EU spending rules or increasing military funds in the EU’s new multiyear budget that will come into force in 2028. But supporters of common debt argue that none of these will be enough to meet the scale of the challenge alone. 

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Competition

Germany’s industrial giants are flailing and shedding jobs. Merz will be expected to act. His party’s manifesto called for “Made in Germany” champions and for a modern antitrust and competition law “that uses a global market as a benchmark,”  references to the Siemens-Alstom deal to create a European rail champion that was blocked by the EU.

Merz is also a fan of cross-border state-funded projects, known as Important Projects of Common European Interest, saying he wants to use such instruments “as effectively as possible in Germany.” The country has been one of the driving forces of several IPCEIs, which have led to the public financing of hydrogen, batteries and cloud infrastructure.

He also wants Germany’s national rail company Deutsche Bahn to be streamlined and restructured, with infrastructure and transport separated “to increase competition.” Given the dire state of German rail, this could prove to be a popular move.

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Tech

Merz sees digital transformation as the key to Germany’s industrial revival and wants to turn the country into Europe’s tech front-runner. His plan is to earmark 3.5 percent of gross domestic product to research and development by 2030, with a special focus on space, quantum computing, artificial intelligence and cloud technologies.

Key proposals include setting up a standalone digital ministry (currently merged with transport) and offering new startups temporary relief from red tape.

Merz has also said that bureaucracy in Berlin and Brussels needs to be drastically reduced for Germany to regain its competitive edge. This stance is in line with the center-right views in EU institutions, where a major push to simplify digital rules is underway. 

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Cyber

In the months leading up to the German election, Berlin’s lawmakers looked to toughen up restrictions on (and potentially ban) high-risk vendors — cough, Chinese suppliers like Huawei — to implement the EU’s rules on cybersecurity in critical sectors.

With work on the draft law rolling over, Merz will be faced with a decision on whether to crack down on Chinese tech in Germany’s critical sectors. His CDU party said that it wants to maintain close economic relations with China, but also committed to taking steps to protect critical infrastructure and security relevant technology.  

The party manifesto also outlined a sweeping change of course in terms of data protection policy, encouraging more “pragmatic” rules that allow data to be used for innovation and growth, as well as law enforcement. 

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Health

A Merz win signals a blow for Germany’s cannabis users, after the CDU leader pledged to reverse last year’s partial decriminalization of the drug. He blames the new policies, which allow adults to possess up to 25 grams of cannabis in public and grow three plants per household, for an increase in drug-related crime. 

It could be good news for fans of the EU’s new rules to digitalize European health records, the European Health Data Space. In an attempt to force notoriously analog Germans away from paper files, Merz has suggested that anyone who stores their data in an electronic patient file could receive a discount on health insurance contributions. 

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Victor Jack, Karl Mathiesen, James Fernyhough, Joshua Posaner, Jordyn Dahl, Koen Verhelst, Douglas Busvine, Ben Munster, Gregorio Sorgi, Aude van den Hove, Mathieu Pollet, Eliza Gkritsi, Ellen O’Regan, Mari Eccles and Hanne Cokelaere contributed to this article.