Submitted by Thomas Kolbe

In a letter to members of the governing coalition that has so far only become known in fragments, Chancellor Friedrich Merz warns of a severe economic crisis and calls for reforms. Yet the circulating and quotable elements of the document from the Chancellery reveal no deviation whatsoever from the course already taken.

Friedrich Merz begins the new year with party-internal messaging. In a letter to members of the governing coalition of the Union parties and the SPD—so far known only in excerpts—the chancellor invokes a common struggle against the economic crisis. Once again, he calls for a “year of reforms,” after the loudly announced “autumn of reforms” last year slipped through his fingers like sand.

Once again, Merz risks seeing a rhetorical initiative dissipate in the void of coalition dynamics—dynamics that, under the dogma of firewall politics, are pushing his government ever deeper into ideological waters that even Social Democrats of the old Helmut Schmidt school would likely consider unacceptably far to the left of economic reason.

The Miracle of Realization

In his letter, Merz warns—while a tremor of startled realization is almost palpable—that dangerous job losses have set in across all sectors and that the situation is dramatic. It is, he writes, high time to enable new growth through better location conditions and to prevent the labor market from tipping over. In short: more competition, more growth, less bureaucracy, lower energy costs.

A profound insight, one that seems to have come over the chancellor as if in a fever dream of his ecologically ambitious “dream Germany.”

It is not as if commentators and industry have not been discussing the causes of deindustrialization and the catastrophic state of the economy for years. But the ideological opinion bubble in Berlin—the tightly drawn belt of NGOs and government-affiliated, sympathetic media—has done its job, preserving within political circles the illusion of success of the green transformation.

How could it be that an economic crisis lasting more than seven years—beginning in the core sectors of German industry and now seeping deep into the entire economy—has only now arrived at the Chancellery with such urgency? That Germany has long been caught in a spiral of deindustrialization is no new insight. It was triggered by an ideologically driven green transformation, by overregulation and fiscal overburdening. To Merz’s credit, he has recognized this. His solution, however: further subsidies for collapsing, politically promoted green structures; subsidies for media-powerful big industry; slogans of endurance—and scolding of the Mittelstand.

Yet even this supposedly simple diagnosis remains incomplete, misunderstood, and carefully obscured. In the known passages of the letter, there is not a word about the migration chaos that for a decade has dragged down social security systems like lead and shaken internal security. Not a word about the naive belief that complex economies can be steered toward a green planned economy in the style of Robert Habeck. Not a word about the fact that Germany’s welfare state has produced tax and contribution burdens that are no longer internationally competitive.

From the looming catastrophe in the Donbas, the chancellor derives nothing more than unwavering loyalty to Kyiv—whatever the cost. After all, it is not his money.

Coalition Without Course Correction

Friedrich Merz already demonstrated last year that, if in doubt, he is prepared to make any concession necessary to preserve his coalition. One need only recall the relabeling of “citizen’s income” into the largely unchanged “basic security”—no one need fear financial cuts if, after skipping appointments twice, they manage to report in time to the relevant welfare administration office for full social provisioning.

The debate about a genuine migration turnaround, about deportations of illegal migrants, has been completely smothered. Instead, we witness media-friendly individual actions designed to conceal the fact that Merz, Klingbeil, and their allies agree on the fundamentals: the EU Commission’s course toward a net-zero economy and a policy of open borders are to be continued—whatever the cost.

We are well acquainted with the missing diagnosis and the formulaic solutions: cutting bureaucracy, subsidized industrial electricity prices, a corporate tax cut vaguely promised for 2028. All of this amounts to little more than white ointment. The real ideological hammers—from the Supply Chain Act to the Heating Act and the recently increased CO₂ levy—are being defended with full force.

Taxpayers and the Mittelstand are being bled in the hope of eventually reaching a green Elysium. Merz sees the state as the decisive player in the economy. Key sectors are to be fully controlled: from green cultural industries to the newly expanding military sector to basic materials—naturally dressed in the green costume of long-failed products like “green steel.” This direction is shared by the German government’s partners in Paris and Brussels.

The fatal belief in the omniscience of the central planner is dragging the country downward like lead.

Capital Flight as a Vote With the Feet

It is remarkable with what chutzpah Friedrich Merz repeatedly points to tax cuts and investment incentives—and to alleged preparatory work by the coalition last year. We have heard it all before. In the end, it is always entrepreneurs who are blamed for the decline. That nothing moves in Germany, of course, has nothing to do with the Kafkaesque overregulation that alone in the past three years forced the economy to create 325,000 new jobs merely to cope with new regulatory requirements.

The hyper-state is overflowing, growing obese, and now outsourcing its tentacular bureaucratic labor.

In reality, capital is voting with its feet. Year after year, Germany loses between €60 and €100 billion in net direct investment. This is no coincidence but a clear verdict on the catastrophic conditions at the location.

As an answer to this state-engineered bloodletting of the economy, the chancellor presents his so-called “Germany Fund”: a state investment fund intended to channel private capital into allegedly promising growth sectors. More planned economy, this time in the guise of innovation promotion. Capital allocation by political decree.

The self-inflicted debt crisis, triggered by the dismantling of the debt brake, is conveniently ignored by Merz in his letter—future generations of politicians and taxpayers will have to deal with that disaster.

“Germany Fund”—when things get uncomfortable, the same political class that otherwise categorically rejects any national reference suddenly reaches for patriotic symbols. A transparent maneuver that fits seamlessly into the media games of the Chancellery: from the corporate coffee klatch “Made for Germany” (as Apollo News reported) to appeals to entrepreneurs to invest in Germany after supposedly brilliant political groundwork. Merz repeatedly stages himself as a business-friendly chancellor—apparently unaware that credibility and trust have long since been squandered.

Friedrich Merz acts like a central planner without an ordoliberal compass. His time as a ceremonial executive at BlackRock seems not to have granted him access to the secret knowledge of market processes. Perhaps he should have gone to school with the much-maligned Javier Milei to understand that an ecological restructuring of the economy according to a state master plan is doomed to fail.

In the next circular, Merz will likely roll out his familiar catalogue of endurance slogans and Mittelstand platitudes—buying time in what is becoming an unavoidable fight against decline.

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About the author: Thomas Kolbe, born in 1978 in Neuss/ Germany, is a graduate economist. For over 25 years, he has worked as a journalist and media producer for clients from various industries and business associations. As a publicist, he focuses on economic processes and observes geopolitical events from the perspective of the capital markets. His publications follow a philosophy that focuses on the individual and their right to self-determination.