German Chancellor Friedrich Merz attends a meeting with U.S. President Donald Trump, Ukrainian President Volodymyr Zelenskiy and other European leaders amid negotiations to end the Russian war in Ukraine, at the White House in Washington, D.C., U.S., August 18, 2025. REUTERS/Al Drago
BERLIN: German chancellor Friedrich Merz says tackling the country’s economic challenges is proving to be a far greater undertaking than he initially anticipated.
“I say this also self-critically – this task is bigger than one or the other may have imagined a year ago,” Merz said in a speech in the northern German town of Osnabrueck on Saturday.
“We’re not just in a period of economic weakness, we are in a structural crisis of our economy.”
Europe’s industrial powerhouse and biggest exporter is struggling with persistently high energy costs in the wake of Russia’s invasion of Ukraine and the turmoil of US trade tariffs.
Data published last Friday showed the German economy contracted in the second quarter by more than initially estimated.
“By this week at the latest, no one should be under any illusions about how deep and far-reaching the challenges that face us are,” Merz told members of his Christian Democratic Union party in Lower Saxony, the home state of carmaker Volkswagen AG.
He pointed to the 36% slump in Volkswagen’s second-quarter earnings after tax as just “one of many messages.”
“Large parts of our economy are no longer truly competitive and that’s a question of price competitiveness,” Merz said, without naming any firms.
“The quality is still good and company leaders recognise these challenges.
“But the underlying conditions in Germany simply haven’t been good enough for the last decade.”
Since taking office this year, Merz has pledged sweeping reforms aimed at cutting red tape, modernising infrastructure and stimulating domestic demand.
His government plans hundreds of billions of euros in investments for roads, bridges and the armed forces to bolster productivity.
On Saturday, he highlighted new tax incentives for business investment and reiterated his opposition to raising taxes for medium-sized companies.
He also acknowledged that the US’s 15% tariffs on German exports will be a burden on the economy, although he cautioned that an outright trade war with Washington could have been far worse. — Bloomberg
