Friedrich Merz has led a coalition of the CDU/CSU and the SPD as German chancellor for barely eight months. From the outset, his tenure was burdened with poor omens. A margin of just 9,500 votes secured him a narrow parliamentary majority. Immediately after the election, he jettisoned the inconvenient ballast of his election manifesto with the help of the Greens, elevating a gargantuan debt programme of half a trillion euros to constitutional status. When his election as chancellor failed in the first parliamentary vote, he even accepted the support of the Left Party alongside the Greens to correct this embarrassment.
Merz was not deterred by any of this. He set out ambitious goals. A new foreign, defence, and economic policy was intended to restore a weakened Germany (and, by extension, Merz himself) to the centre of power in Europe. Yet it has now become abundantly clear that Merz and his government lack any long-term strategy. He has never managed to overcome the congenital defects and inherent weakness of his administration, despite all the grand promises delivered at press conferences. As a result, his politics are geared solely toward short-term, day-to-day survival. To make matters worse, even the implementation of these already misguided objectives has been marked by sheer amateurism.
How Germany lost the Russian assets gamble
Two political stillbirths illustrate with striking clarity that neither his foreign policy nor his economic policy can succeed: first, the planned seizure of €210 billion in Russian assets held in Belgium; and second, the loudly announced but entirely hollow “autumn of reforms” that was supposed to put the German economy back on track.
The idea of confiscating the €210 billion in Russian central bank assets (mostly frozen at Euroclear in Belgium) and converting them into a forced loan to finance Ukraine’s war effort was one of the central foreign policy objectives of the Merz government this autumn. But why was Merz so keen on this plan? The answer is straightforward. Following the U.S. withdrawal from financing Ukraine, Europeans are expected to shoulder the financial burden. The German federal government is broke; as the second part will show, the economic situation remains dire despite the orgy of debt. To demonstrate at least some semblance of action, something—anything—had to be done for Ukraine. In the search for money, attention inevitably turned to these assets.
Yet the very idea of confiscation is politically foolish. These assets are in Belgium because the EU enjoys an international reputation as a comparatively secure legal jurisdiction for capital. If that reputation is damaged, the euro’s status as a global reserve currency is put at risk, as other states (above all, China) would have a strong incentive to develop alternative financial hubs. Moreover, even in wartime, it is reasonable to argue that certain channels of communication with Russia should remain open, if only to preserve minimal engagement. Respecting Russian property rights would have been one such opportunity. Ironically, it was left to the Trump administration to make this point, while the German government, usually so eager to invoke the rule of law, ignored it.
Had Belgium been saddled with liability risks of such an absurd magnitude, a dangerous precedent would also have been set, one that would justifiably alarm smaller EU member states. Yet Merz’s short-term activism pushed such strategic considerations entirely into the background. Had Merz succeeded, Europe would have suffered long-term damage. Fortunately, the execution of these plans was so amateurish that small Belgium and the weakened French president, Emmanuel Macron, were able to outmanoeuvre Merz completely.
Merz and his European affairs minister, Johann Wadephul (CDU), entered the EU summit in mid-December, openly demanding this forced loan. Their promise was that Russia would someday, at some unspecified future date, cover the costs through reparations, effectively paying for the confiscation of its own assets. Belgium hurled this flimsy argument back at the Germans like a boomerang: if the confiscation is truly so risk-free, why not share liability among all 27 member states? At that moment, the German government, having arrived at the summit without a Plan B, was already checkmated.
Belgian Prime Minister Bart De Wever displayed a far keener sense of the political weather than the self-proclaimed leader Merz. He understood that France and Italy would never agree to joint liability. This was Macron’s moment. Why not issue joint European debt? Suddenly, the long-cherished dream of every French government—a common European debt instrument—appeared far more coherent than Merz’s plan. French negotiators even managed to foist these mini–euro bonds onto Merz as if they had been his idea all along. By the end of the summit, Merz stood exposed once again, presiding over yet another debt binge: another one for which the German taxpayer will largely be responsible.
An economy trapped by debt and denial
This is even more alarming given the bleak outlook for the German economy. Growth forecasts were revised downward in December. According to the ifo Institute, the German economy is expected to stagnate at 0.1% in 2025, 0.8% in 2026, and 1.1% in 2027. Here, another congenital flaw of the Merz government becomes evident. Merz gambled that foreign policy would be the decisive field and therefore claimed the foreign ministry for the CDU during coalition negotiations. At the same time, he ceded the key economic portfolios to the SPD. Both the finance ministry and the labour and social affairs ministry are led by the SPD’s two party co-chairs, who have so far blocked any growth-enhancing reforms.
Finance Minister Lars Klingbeil presented a 2026 budget that uses nearly all new debt not for investment but to plug existing fiscal holes. This is one reason growth forecasts were revised downward: the anticipated expansionary effect of the debt package turned out to be an illusion. Meanwhile, Labour and Social Affairs Minister Bärbel Bas has prevented any serious reform of the bloated welfare state. The Bürgergeld welfare payments, introduced by the Scholz government in the image of a basic income and a major source of dysfunction, have not been meaningfully reformed, merely renamed. Bas even succeeded, in an alliance with the CSU, in outmanoeuvring the CDU and pushing through a massive expansion of pension spending. This locks up fiscal space for decades to come; every tax euro is already spent.
Merz sacrificed this fiscal flexibility in exchange for the SPD dropping its opposition to rolling back the EU’s internal combustion engine ban. Was this worth such a huge price? Here it becomes clear that Merz fundamentally miscalculated when assembling his government. If the economy continues to flatline further, and if his foreign policy remains as unsuccessful as it has been so far, his political future will rest on fragile foundations.
From European ambition to domestic decline
The year 2026 will be a super election year in Germany. Around 36 million citizens (roughly 60% of the eligible population) will vote in multiple state and local elections. Of particular importance are the five state elections that determine not only the prestigious offices of state premiers but also the composition of the Bundesrat, the upper chamber of the federal legislature. These elections will amount to a referendum on the federal government and on Friedrich Merz himself. Polling numbers for the CDU and SPD are poor across the board, and in eastern Germany, the question is whether the AfD will achieve an outright majority.
It is already an open secret that the CDU plans to rely on the Greens or even the Left Party (Die Linke) to form majorities in many states. This would push Germany’s party system toward a de facto two-bloc structure, with the self-proclaimed democrats of the CDU/CSU, SPD, Greens, and Left Party uniting against the AfD. Yet, in such a world, the CDU/CSU can only lose. Thus, rather than a rebirth of European greatness under the leadership of Friedrich Merz, what seems far more likely is the decline of his own party.
Merz’s Fantasy of Leading Europe
German Chancellor Friedrich Merz speaks to journalists at the opening ceremony for the reconstructed Rahmede bridge on the A45 motorway, near Luedenscheid, western Germany on December 22, 2025.
SASCHA SCHUERMANN / AFP
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Friedrich Merz has led a coalition of the CDU/CSU and the SPD as German chancellor for barely eight months. From the outset, his tenure was burdened with poor omens. A margin of just 9,500 votes secured him a narrow parliamentary majority. Immediately after the election, he jettisoned the inconvenient ballast of his election manifesto with the help of the Greens, elevating a gargantuan debt programme of half a trillion euros to constitutional status. When his election as chancellor failed in the first parliamentary vote, he even accepted the support of the Left Party alongside the Greens to correct this embarrassment.
Merz was not deterred by any of this. He set out ambitious goals. A new foreign, defence, and economic policy was intended to restore a weakened Germany (and, by extension, Merz himself) to the centre of power in Europe. Yet it has now become abundantly clear that Merz and his government lack any long-term strategy. He has never managed to overcome the congenital defects and inherent weakness of his administration, despite all the grand promises delivered at press conferences. As a result, his politics are geared solely toward short-term, day-to-day survival. To make matters worse, even the implementation of these already misguided objectives has been marked by sheer amateurism.
How Germany lost the Russian assets gamble
Two political stillbirths illustrate with striking clarity that neither his foreign policy nor his economic policy can succeed: first, the planned seizure of €210 billion in Russian assets held in Belgium; and second, the loudly announced but entirely hollow “autumn of reforms” that was supposed to put the German economy back on track.
The idea of confiscating the €210 billion in Russian central bank assets (mostly frozen at Euroclear in Belgium) and converting them into a forced loan to finance Ukraine’s war effort was one of the central foreign policy objectives of the Merz government this autumn. But why was Merz so keen on this plan? The answer is straightforward. Following the U.S. withdrawal from financing Ukraine, Europeans are expected to shoulder the financial burden. The German federal government is broke; as the second part will show, the economic situation remains dire despite the orgy of debt. To demonstrate at least some semblance of action, something—anything—had to be done for Ukraine. In the search for money, attention inevitably turned to these assets.
Yet the very idea of confiscation is politically foolish. These assets are in Belgium because the EU enjoys an international reputation as a comparatively secure legal jurisdiction for capital. If that reputation is damaged, the euro’s status as a global reserve currency is put at risk, as other states (above all, China) would have a strong incentive to develop alternative financial hubs. Moreover, even in wartime, it is reasonable to argue that certain channels of communication with Russia should remain open, if only to preserve minimal engagement. Respecting Russian property rights would have been one such opportunity. Ironically, it was left to the Trump administration to make this point, while the German government, usually so eager to invoke the rule of law, ignored it.
Had Belgium been saddled with liability risks of such an absurd magnitude, a dangerous precedent would also have been set, one that would justifiably alarm smaller EU member states. Yet Merz’s short-term activism pushed such strategic considerations entirely into the background. Had Merz succeeded, Europe would have suffered long-term damage. Fortunately, the execution of these plans was so amateurish that small Belgium and the weakened French president, Emmanuel Macron, were able to outmanoeuvre Merz completely.
Merz and his European affairs minister, Johann Wadephul (CDU), entered the EU summit in mid-December, openly demanding this forced loan. Their promise was that Russia would someday, at some unspecified future date, cover the costs through reparations, effectively paying for the confiscation of its own assets. Belgium hurled this flimsy argument back at the Germans like a boomerang: if the confiscation is truly so risk-free, why not share liability among all 27 member states? At that moment, the German government, having arrived at the summit without a Plan B, was already checkmated.
Belgian Prime Minister Bart De Wever displayed a far keener sense of the political weather than the self-proclaimed leader Merz. He understood that France and Italy would never agree to joint liability. This was Macron’s moment. Why not issue joint European debt? Suddenly, the long-cherished dream of every French government—a common European debt instrument—appeared far more coherent than Merz’s plan. French negotiators even managed to foist these mini–euro bonds onto Merz as if they had been his idea all along. By the end of the summit, Merz stood exposed once again, presiding over yet another debt binge: another one for which the German taxpayer will largely be responsible.
An economy trapped by debt and denial
This is even more alarming given the bleak outlook for the German economy. Growth forecasts were revised downward in December. According to the ifo Institute, the German economy is expected to stagnate at 0.1% in 2025, 0.8% in 2026, and 1.1% in 2027. Here, another congenital flaw of the Merz government becomes evident. Merz gambled that foreign policy would be the decisive field and therefore claimed the foreign ministry for the CDU during coalition negotiations. At the same time, he ceded the key economic portfolios to the SPD. Both the finance ministry and the labour and social affairs ministry are led by the SPD’s two party co-chairs, who have so far blocked any growth-enhancing reforms.
Finance Minister Lars Klingbeil presented a 2026 budget that uses nearly all new debt not for investment but to plug existing fiscal holes. This is one reason growth forecasts were revised downward: the anticipated expansionary effect of the debt package turned out to be an illusion. Meanwhile, Labour and Social Affairs Minister Bärbel Bas has prevented any serious reform of the bloated welfare state. The Bürgergeld welfare payments, introduced by the Scholz government in the image of a basic income and a major source of dysfunction, have not been meaningfully reformed, merely renamed. Bas even succeeded, in an alliance with the CSU, in outmanoeuvring the CDU and pushing through a massive expansion of pension spending. This locks up fiscal space for decades to come; every tax euro is already spent.
Merz sacrificed this fiscal flexibility in exchange for the SPD dropping its opposition to rolling back the EU’s internal combustion engine ban. Was this worth such a huge price? Here it becomes clear that Merz fundamentally miscalculated when assembling his government. If the economy continues to flatline further, and if his foreign policy remains as unsuccessful as it has been so far, his political future will rest on fragile foundations.
From European ambition to domestic decline
The year 2026 will be a super election year in Germany. Around 36 million citizens (roughly 60% of the eligible population) will vote in multiple state and local elections. Of particular importance are the five state elections that determine not only the prestigious offices of state premiers but also the composition of the Bundesrat, the upper chamber of the federal legislature. These elections will amount to a referendum on the federal government and on Friedrich Merz himself. Polling numbers for the CDU and SPD are poor across the board, and in eastern Germany, the question is whether the AfD will achieve an outright majority.
It is already an open secret that the CDU plans to rely on the Greens or even the Left Party (Die Linke) to form majorities in many states. This would push Germany’s party system toward a de facto two-bloc structure, with the self-proclaimed democrats of the CDU/CSU, SPD, Greens, and Left Party uniting against the AfD. Yet, in such a world, the CDU/CSU can only lose. Thus, rather than a rebirth of European greatness under the leadership of Friedrich Merz, what seems far more likely is the decline of his own party.
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