Merz sworn in as German chancellor with €500bn spending plan and Taurus missile pledge

Friedrich Merz was sworn in as Germany's tenth federal chancellor on 6 May 2025, ending six months of caretaker government under Olaf Scholz and launching a CDU-SPD coalition that has already abandoned the fiscal orthodoxy on which Merz campaigned. The new administration takes office with a €500bn off-budget vehicle for infrastructure and defence, a pledge to send Taurus cruise missiles to Ukraine, and a far-right Alternative for Germany (AfD) bloc in the Bundestag that polls level with the chancellor's own party.

A cabinet built for speed and competence

Merz's ministerial selections signal a preference for technical expertise over party loyalty. Katherina Reiche, a former energy executive who has never sat in the Bundestag, takes the economics and climate ministry, a portfolio that will oversee the retooling of Germany's industrial base. Johann Wadephul, a CDU foreign policy specialist with a hard line on Russia, becomes foreign minister. Boris Pistorius remains at the defence ministry, the only minister retained from the Scholz cabinet, reflecting a consensus that he grasped the scale of military neglect earlier than most.

The most consequential appointment may be Lars Klingbeil. The SPD co-leader becomes vice chancellor and finance minister, placing him in direct control of the €500bn special fund. Both Merz and Klingbeil have studied the collapse of the previous coalition, in which Christian Lindner used the finance ministry as an internal opposition platform. Their cooperation will determine whether the new government avoids the paralysis that felled its predecessor.

The €500bn question: growth now, modernisation later

The coalition's centrepiece is a €500bn extra-budgetary fund, roughly 12% of GDP, split between infrastructure modernisation and defence spending. The vehicle circumvents the constitutional debt brake that Merz defended during the election campaign. As one diplomat put it: "Growth today, modernisation tomorrow." The fund is expected to pull Germany out of its technical recession, but whether it addresses the structural weaknesses, digital infrastructure, planning law, skills shortages, that have persisted through multiple governments remains unproven.

A new digital ministry has been created to drive technological adoption, yet Germany's track record on digitalisation is poor. The country ranks near the bottom of EU league tables for broadband rollout, e-government and business digitalisation. Breaking through the layered bureaucracy that has stymied previous reform attempts will be the test of whether the spending translates into lasting competitiveness.

Foreign policy pivot: Taurus missiles and a European defence identity

Merz's first foreign trips, Paris, Warsaw, Brussels, London, are designed to restore Germany's standing after a Scholz era that alienated partners including Emmanuel Macron and Volodymyr Zelenskyy. The clearest break comes on Ukraine: Merz has committed to supplying Taurus cruise missiles, a step Scholz refused on escalation grounds. The decision will test the new government's relationship with Washington, where the Trump administration has signalled scepticism toward European defence autonomy and continued military aid to Kyiv.

The pivot was catalysed by JD Vance's speech at the Munich Security Conference in February 2025, which made clear that the United States no longer sees itself as Europe's guarantor and may even act as an adversary on trade and security. Merz, who once suggested he could work with a Trump administration, now frames his chancellery as a defence of liberal democracy against authoritarian pressures from both east and west.

The AfD shadow over the Bundestag

The new Bundestag contains the largest far-right contingent in postwar German history. The AfD holds 152 seats and recent polls place it level with the CDU at around 24%. This electoral reality shapes the coalition's domestic agenda. Enhanced border controls, announced as one of the government's first acts, are explicitly designed to neutralise the AfD's signature issue. The SPD, whose vote share collapsed to its worst result since the 19th century, has acquiesced, calculating that a tough stance on migration is the only way to stanch further losses.

Merz insists he is not a populist, yet his government's early measures mirror AfD demands. The risk is that legitimising the far-right's framing on migration strengthens rather than weakens it. The next federal election is scheduled for 2029; Berlin insiders already describe it as democracy's "last chance" before the AfD could emerge as the largest party.

Coalition arithmetic: SPD rewarded beyond its weight

The coalition agreement was concluded in under two months, supersonic by German standards. The speed came at a price: the SPD secured seven cabinet posts despite winning only 16.4% of the vote in February, its worst result since 1887. Key portfolios, finance, labour, health, housing, development, environment and justice, remain in Social Democratic hands. The commitment to maintain high welfare spending suggests structural reform of the pension and health systems, long urged by economists, will be minimal.

The Greens, who opposed the debt brake from opposition, are excluded from government and have accused Merz of deliberate deceit: campaigning on fiscal discipline while preparing a borrowing splurge. Their absence removes a potential brake on both climate policy dilution and migration hardlining.

Background: from traffic light collapse to grand coalition

What happens next: the first 100 days