Friedrich Merz, Germany’s likely next chancellor and leader of the Christian Democratic Union (CDU), has issued an urgent call for policy action in response to sharp market declines triggered by renewed trade tensions with the United States.
Speaking as global financial markets continued to falter, Merz called for measures to shore up German competitiveness, warning that the country faces growing economic risks if action is not taken swiftly. His remarks come in the wake of U.S. President Donald Trump’s announcement of new tariffs on imports from the European Union, including steep duties on German steel, aluminium, cars, and a broad range of other goods.
“The situation on the international equity and bond markets is dramatic and threatens to deteriorate further,” Merz said in a written statement to Reuters. “It is therefore more urgent than ever for Germany to restore its international competitiveness as quickly as possible.”
Merz’s statement also makes clear that these concerns will be central to the ongoing coalition negotiations between the CDU and the centre-left Social Democratic Party (SPD), as the two parties attempt to form a new government following recent federal elections.
“The issue must now be at the centre of the coalition negotiations,” Merz added, reiterating the CDU’s position in favour of tax reductions, cuts to bureaucratic regulations, and lower energy prices to stimulate economic growth and attract investment.
Markets reacted sharply to the escalation in transatlantic trade tensions. Germany’s benchmark DAX index opened nearly 10 per cent lower on Monday, one of the steepest drops in the eurozone, before partially recovering some of its losses later in the day. Bond yields also fell, with investors pricing in the growing likelihood of interest rate cuts by the U.S. Federal Reserve as early as May.
President Trump’s move to impose 25 per cent import tariffs on EU steel, aluminium and vehicles, alongside “reciprocal” tariffs of 20 per cent on a wide array of other European goods, is set to come into force on Wednesday. The measures follow previous warnings from Washington about what the administration has termed “unfair trade imbalances” between the United States and its trading partners.
Germany, heavily reliant on exports and already struggling with weak industrial output and tepid consumer demand, now faces additional pressures. The country is in its second consecutive year of economic contraction, with no clear signs of recovery. Analysts had hoped that fiscal stimulus initiatives under discussion by the incoming coalition might reverse the trend, but escalating trade frictions risk undermining those efforts.
The latest Sentix survey of investor sentiment in the eurozone reflected growing anxiety, with confidence levels falling to their lowest in over a year. The downturn in sentiment follows initial optimism over expected public spending increases associated with Merz’s planned economic package.
Merz, who has taken a more assertive stance on foreign policy than his predecessors, has also used the occasion to reiterate calls for greater European strategic autonomy. While not naming specific actions, he suggested that Europe must rethink its dependence on Washington in the area of defence and trade security.
“The events of the past week underline the need for Europe to act together and speak with one voice,” a CDU spokesperson said. “We support efforts by the European Commission to develop a coordinated response to these tariffs.”
In Brussels, officials are drafting countermeasures aimed at providing a unified EU response. Talks are under way to identify targeted sectors for potential retaliatory tariffs, although the Commission has emphasised the need for de-escalation and dialogue where possible.
The German business community has voiced concern about the developments. Industry associations representing the automotive and steel sectors warned of potential factory shutdowns and job losses if trade barriers persist. Meanwhile, economists are revising forecasts downwards, citing the risk that the dispute could tip the broader eurozone economy into recession.
For Merz, the crisis represents an early test of leadership before he formally assumes the chancellorship. His ability to steer coalition talks towards a credible and effective economic strategy, while managing tensions with the United States and maintaining European unity, will be closely watched by both domestic and international observers.
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