Germany under Merz: progress report

Germany's new Chancellor has inherited a fragile economy. At the start of 2025, real GDP had just returned to its 2019 level. In the meantime, several negative shocks had highlighted several structural problems. The country was too dependent on Russia to cover its energy needs, on China for its exports, on the automotive industry for its industrial activity and on the United States to ensure its defence against external threats. Friedrich Merz neatly took advantage of the circumstances to shake off the fiscal straitjacket and advocate a major effort on public investment and defence. Let’s recap on the situation at a time when the business climate seems to be picking up.