German Chancellor Friedrich Merz used a World Economic Forum address in Davos on 22 January to argue that the European Union has become the “world champion of over-regulation” and must cut bureaucracy sharply if it is to retain economic weight and strategic autonomy.
He linked the case for reform to what he described as a shift from rules-based cooperation towards “great power politics”, in which security, competitiveness and European unity would determine Europe’s room for manoeuvre.
Merz said the calm of Davos contrasted with an international environment in which the “old order” was being remade at speed. Russia’s invasion of Ukraine, China’s rise and a more transactional US foreign policy were, he argued, signs that international relations were increasingly shaped by “power, strength, and when it comes to it, force”. Against that backdrop, he said Europe should not treat events as predetermined, but should respond with “clear-eyed realism”.
The speech combined a defence agenda with a direct critique of EU rulemaking. Merz said Germany’s new government had set two goals: restoring German economic strength and making Europe “a key player again” in global politics, especially in defence. He said those aims were inseparable, because Europe’s defence capability depended on economic momentum. He pointed to Berlin’s decision at the start of his tenure to raise German defence spending “up to five percent of GDP”, framing higher spending as a means of asserting sovereignty and reducing technological dependence.
His sharpest comments were reserved for Europe’s internal policy environment. Merz said that both Germany and the EU had “wasted incredible potential for growth in recent years” by delaying reforms and “excessively curtailing entrepreneurial freedoms and personal responsibility”. He said that “security and predictability” should take precedence over “excessive regulation and misplaced perfection”, and that the EU must “reduce bureaucracy substantially”.
He argued that the single market had been created to build the most competitive economic area in the world, but had instead produced a regulatory burden that now undermined competitiveness. “That has to end,” he said, adding that he had mobilised EU leaders to convene for a special summit on 12 February to “set the course”. Merz said he and Italian Prime Minister Giorgia Meloni had prepared proposals including an “emergency brake for bureaucracy”, “discontinuity for legislative work”, and a modernised EU budget with competitiveness as the priority, alongside a “service-oriented administration”.
Merz singled out the EU’s unfinished capital markets project as a constraint on scale and investment. He said he would push for rapid progress on the capital markets union, arguing that European “champions” should not remain dependent on financing and stock listings outside the continent, but should be able to raise capital and go public in Europe. The emphasis reflects a wider push by Berlin and Rome for concrete measures to simplify procedures, deepen single-market integration and improve access to finance, which Reuters reported ahead of the February leaders’ retreat in Belgium.
On trade, Merz presented the EU as an advocate of open markets at a time of proliferating tariffs. He said Europe should strengthen rules for fair trade and oppose state-backed distortions, export controls and “arbitrary tariffs”. He said the EU was making progress, citing the signing of the Mercosur agreement, while adding that he “deeply” regretted that the European Parliament had placed “another obstacle” in the way the previous day. Merz said the agreement was “fair and balanced” and suggested it would most likely be provisionally applied. He also pointed to Commission plans to advance trade talks with India, and efforts to conclude agreements with Mexico and Indonesia.
The chancellor’s EU critique was delivered alongside warnings about strain in transatlantic relations. Addressing US pressure for greater influence in Greenland, Merz said any threat to acquire European territory by force would be “unacceptable”, and that new tariffs would undermine the foundations of the relationship. If tariffs were imposed, he said, Europe’s response would be “united, calm, measured and firm”. Reuters reported that Merz welcomed President Donald Trump’s shift away from tariff threats linked to Greenland and urged Europeans not to write off the transatlantic partnership.
Merz framed his domestic economic programme as part of the same competitiveness drive he wants the EU to adopt: lower energy costs, accelerated infrastructure upgrades backed by a €500 billion programme, and large-scale investment in digital infrastructure and artificial intelligence capacity. He told investors Germany aimed to mobilise private capital for infrastructure and industrial transformation through predictable rules and strong institutions.
The central argument of the Davos address was that Europe’s security policy and its economic model now face the same test. Merz said Europe had “gotten the message” in a more competitive global order, and that Germany would pursue reforms organised around “security, competitiveness, and European unity”. For the EU, his prescription was straightforward: fewer rules, faster decision-making, deeper capital markets and a budget more explicitly aligned with growth and industrial capacity.
