BERLIN: For chancellor-hopeful Friedrich Merz, the keys to unlocking a new era of prosperity lie in revisiting the policies that helped drive Germany’s postwar economic miracle.

The Christian Democratic Union (CDU) leader vying to succeed Olaf Scholz is touting a distinctly pro-business agenda of lower taxes, less regulation and fewer handouts informed by a decade of rubbing shoulders with the country’s executives.

Confidants of 69-year-old Merz say the policy mix employed after 1945, which combined a free market with social protections, has shaped his vision of how to shake off the funk afflicting Germany today.

A career hiatus spent in the political wilderness as a corporate lawyer and on company boards has coloured that view.

“Our mentality needs to change in some respects,” he said in an interview this month with Stern magazine.

“Of course, many people achieve a lot in their jobs. But at the same time, I see too little innovation and too little willingness to make changes that could improve our lives.”

Many in the country’s powerful business constituency would applaud his plan to stop the rot after a run of lost years for Europe’s largest economy even if Merz would likely have to compromise with coalition partners – assuming the CDU’s conservative alliance wins the Feb 23 elections.

“If companies sense that things are going in the right direction, then that will have an impact,” said Stefan Klebert, chief executive officer of GEA Group AG, a supplier of manufacturing machinery based in Dusseldorf.

A bigger question is whether a platform largely rooted in successes of the past can address Germany’s 21st century challenges of waning competitiveness and a faltering, unpopular energy transition.

The return of Donald Trump to the White House means the next government may also have to navigate a global trade war, complicated relations with Beijing and, perhaps, difficult choices over the conflict in Ukraine – with extremist parties poised to capitalise on any misstep.

“New elections are good and long overdue, but they won’t be a panacea for Germany,” Klebert added.

Just last week, the Council of Economic Experts that advises the government scrapped its forecast for economic growth in 2024 to predict a second year of contraction, followed by a paltry 0.4% pace of expansion in 2025.

Such prolonged weakness is forcing corporate Germany to retreat.

Volkswagen AG, having already lost its crown as the world’s biggest carmaker, is now considering unprecedented factory closures in its home market.

Further up the supply chain, parts makers Schaeffler and ZF Friedrichshafen are cutting thousands of jobs.

“We would urge German policymakers to stay focused on broad-based policies to lift economy-wide productivity,” said Alfred Kammer, director of the European Department at the International Monetary Fund.

He pointed out to the need for more investment in public infrastructure, cutting administrative burdens and boosting innovation.

Merz’s pro-market policies chime with some of that agenda, encompassing tax cuts, deregulation and less bureaucracy, all aimed at making Germany an easier place to do business.

Early in his career, he said tax returns should become straightforward enough to fit onto a beer mat. 

 - Bloomberg