100-day review of Merz administration reveals calls for economic restructuring and reduction of bureaucratic red tape
After 100 days in office, Chancellor Friedrich Merz's administration has faced a mix of proposed reforms and criticisms in Germany's economic policies. The focus areas include armaments financing, tax relief, labor market flexibility, bureaucracy, and welfare state changes.
Proposed Reforms
The government has proposed several key initiatives. Notably, a constitutional reform to raise Germany's debt ceiling by €500 billion over 12 years for infrastructure and climate investments, including defense-related spending, via a special fund. This move aims to stimulate industrial investment, particularly in energy-intensive sectors like automotive and chemicals.
The coalition also plans phased corporate tax cuts starting in 2028 and a 30% special depreciation allowance for equipment investments from 2025 to 2027. These measures are designed to speed up infrastructure approvals and address skilled labor shortages.
Moreover, the "Made for Germany" initiative, involving top firms pledging significant investments, supports these goals by promising faster infrastructure approvals and flexible labor market policies.
Criticisms and Challenges
Despite these proposals, critics argue that Merz has yet to make significant headway on key campaign promises. Issues such as reducing immigration, boosting economic growth, reforming the welfare state, and improving infrastructure without new debt remain unaddressed. This lack of progress has led to a drop in poll ratings and a relative strengthening of the right-wing AfD party, indicating political dissatisfaction.
Some analysts claim that despite rhetoric on reform, the government largely continues policies reminiscent of the previous administration, preserving an expensive welfare state and increasing debt rather than cutting back. This reluctance to enact deep reforms is viewed as sedating the economy rather than stimulating it.
Uncertainty over investment focus is another concern. Although the government has secured debt capacity for infrastructure and climate action, there is a lack of prioritization for climate technologies such as hydrogen energy in upcoming budgets.
Furthermore, while pushing investment incentives and tax reliefs, the government also supports tighter foreign investment oversight in critical sectors, which could introduce uncertainties for multinational companies.
Notable Opinions
Economist Clemens Fuest, Ifo President, has expressed approval for improved tax incentives for investments and initial steps towards reducing unnecessary bureaucracy, such as the Supply Chain Act. However, he criticized tax relief for overtime, reduction of VAT for gastronomy, and early retirement pension as questionable decisions.
Rainer Dulger, President of the Employers' Association, is anticipating the autumn of reforms. Frank Werneke, Chairman of Verdi, praises the stabilization of the pension level and the strengthening of collective agreements through the Federal Tariff Loyalty Act.
Christiane Benner, Chairwoman of IG Metall, criticizes the narrative of Germans not working enough. Federal Minister of Economics Katherina Reiche (CDU) called for further reforms, including making wage-related costs competitive, making energy prices affordable, becoming more flexible on the labor market, and getting the issue of bureaucracy under control.
In summary, Merz's early reform agenda includes expansive investment financing, tax relief, streamlining bureaucracy, and welfare state adjustments. However, the implementation has been cautious and uneven, leading to criticism that the government is hesitant to unlock necessary structural reforms, possibly undermining economic revival and political stability in Germany's complex landscape.
- The Chancellor Friedrich Merz's administration's policies have sparked discussions in personal-finance circles, particularly their proposed constitutional reform to raise Germany's debt ceiling for infrastructure and climate investments, which includes defense-related spending.
- In the realm of business and politics, Merz's administration has faced criticism for not addressing key campaign promises like reducing immigration, boosting economic growth, and reforming the welfare state effectively.
- Policy-and-legislation debates in Germany involve the government's approach to finance, with analysts and economists expressing opinions on measures like tax relief for investments and the Supply Chain Act, as well as questionable decisions such as tax relief for overtime and early retirement pensions.