Friedrich Merz, the likely new Chancellor of Germany, has announced an agenda that initially seemed decisive, but upon closer inspection, raises questions that are making investors nervous.
Two key points are in the spotlight: his uncompromising support for Ukraine in the current conflict and his critical stance towards Elon Musk. Both could lead to an uncertain period for the German economy. Merz has made no secret of his intention to strengthen Ukraine’s support, militarily and politically, which signals a hard line against Russia, potentially further straining the already tense energy market. Germany, whose industry relies on affordable energy, may find itself in a more precarious situation: higher costs, growing uncertainty and a potentially escalating conflict on its doorstep.
The markets are reacting accordingly, as stability looks different to investors. Additionally, Merz’s cool relationship with Elon Musk is a significant aspect. The entrepreneur, with Tesla and SpaceX, sets global standards for innovation and economic opportunities, but Merz seems to have little regard for his vision. This stance could have far-reaching consequences, particularly in a transatlantic context.
If the new German government were to clash with a protectionist US administration, the scenario of tariffs on German cars looms, a scenario that would severely impact the automotive industry, with major companies like Volkswagen, BMW and Mercedes-Benz heavily reliant on the US market. Initial stock losses show that investors are already weighing the risks.
What remains is a sense of disappointment. Merz may have made a strong impression with his clear words and decisive stance, but the markets are not buying it unconditionally. The uncertainties are too great and the risk of an economic headwind too real. Instead of jubilation, there is a sense of restraint. The coming months will reveal whether Merz can skillfully weave diplomatic ties in Washington – or if his policies will exact a high toll from Germany. Already, he has broken a significant amount of valuable porcelain.