Friedrich Merz’s economic cure for Germany, the sick man of Europe
The CDU leader’s prescription is tax cuts, slashing benefits for refugees and less bureaucracy — but economists say Agenda 30 doesn’t add up
The last time a German government enacted “get on your bike” economic reforms was more than 20 years ago when Chancellor Gerhard Schröder, now vilified for his friendship with Vladimir Putin, cajoled his Social Democrats into accepting his Agenda 2010 package of radical benefit cuts.
The agenda cost him his job because SPD voters never forgave him for it, but it worked, hauling Europe’s largest economy out of recession and temporarily restoring its “Vorsprung durch Technik” prowess in Europe and the world.
Angela Merkel reaped the rewards, taking credit for solid economic growth that endured for most of her 16 years in power. With tax revenues pouring in, she put reforms on hold, keeping the ageing population happy with pension increases while blue-chips like VW and Siemens raked in profits from surging sales to China and cheap Russian energy.
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Those days are over. The title of sick man of Europe is back again for the first time since 2003, when it spurred Schröder into action.
In the past two years, Germany’s performance has been the worst among the G7 top economies, with a contraction in GDP in 2023 and zero growth in 2024. It is expected to remain at the bottom of the ranking in 2025 with 0.8 per cent growth, according to the International Monetary Fund.
Surging costs, paralysing bureaucracy and years of underinvestment have made a mockery of clichés about Teutonic efficiency and the trains running on time.
The word “agenda” in a campaign manifest remains a red rag to the left but the CDU leader, Friedrich Merz, the contender most likely to become chancellor in the February 23 election, has embraced it, promising to turn Germany around with an Agenda 2030.
Formally agreed in Hamburg at a weekend conference of CDU leaders, the 12-page plan pledges to restore Germany to annual growth of at least 2 per cent with a four-year series of tax cuts for low and middle-income households and for companies. The top tax rate on corporate earnings is to be slashed from 40 per cent to 25 per cent. The CDU has remained vague on how it plans to fund the relief and is pinning its hopes on rising growth to do the job.
In an attempt to clip the wings of the hard-right AfD, which is in second place at 21 per cent according to the latest poll, the agenda includes cuts in benefits for refugees, as well as for the long-term unemployed. Anyone refusing reasonable offers of work will risk a complete loss of state support, Merz told a news conference on Saturday.
“We’ve got to restore our economic performance. The objective state of our economy is much worse than 20 years ago because we’re losing competitiveness on a large scale,” Merz said.
Germany’s manufacturing sector remained the core of its prosperity and would suffer “irreparable damage” without fundamental change. “We don’t have much time to correct this,” said Merz, whose CDU/CSU bloc is polling at 30 per cent.
Agenda 2030 will introduce tax breaks for overtime and for pensioners who want to top up their income in an attempt to get Germans to work more; recent OECD data showed that Germans put in significantly fewer working hours per year than the EU average or UK workers.
Merz also plans to spur investment through “deep cutbacks” in German and EU bureaucracy. Planning approval for building projects is to be sped up and start-up companies are to be spared much of Germany’s notorious red tape. There are plans for a digital affairs ministry to help cut bureaucracy.
The agenda also aims to reverse the planned EU ban on the sale of new petrol and diesel cars from 2035.
Merz said immigration had led to an “objective overburdening of the capacities of our country” after more than three million people from non-EU countries had entered Germany in the past four years.
The message was similar, but less blunt, to that of his rival Alice Weidel, whose AfD has been endorsed by Elon Musk as Germany’s “last spark of hope”.
“Cut social benefits for people without residence entitlement and carry out deportation on a large scale,” she told a party conference in Riesa where she was anointed as its candidate for chancellor. “I must honestly tell you, if that’s supposed to be called remigration, then it’s called remigration,” she told delegates to applause.
She described the 10,000 protesters who had delayed the start of the conference by two hours as “red painted Nazis”, echoing her remarks last week in an online conversation with Musk that Adolf Hitler was a communist.
She also had a radical plan on green policy, promising: “We will tear down all wind turbines, down with these windmills of shame!”
Economists are questioning how Merz plans to fund the tax cuts and other measures given that they will cost an estimated €89 billion.
Marcel Fratzscher, the president of the German Institute for Economic Research, said: “Economic growth of 2 per cent is illusory. The combination of lower taxes, higher investment and less debt is a contradiction in terms and like squaring the circle.”
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