BERLIN — Friedrich Merz, the leading candidate for the chancellorship in Germany, expressed grave concerns regarding the financial stability of the European Union (EU), suggesting that a new financial crisis is imminent due to excessive government debt.

In an interview with POLITICO, Merz confirmed his apprehensions, stating, "The next financial crisis is definitely coming.

It will be a sovereign debt crisis.

We don’t know when it will come.

We don’t know from where it will come from, but it will come."

Merz’s comments come as Germany approaches its general election on February 23, 2025. He emphasized that Germany must be prudent with its public finances in contrast to other EU nations that may not be as disciplined.

While he did not specify which countries he was referring to, data indicates that six EU member states—France, Italy, Greece, Belgium, Spain, and Portugal—currently possess debt levels exceeding their annual economic output.

The backdrop of Merz's remarks includes a wider discussion on amending Germany's debt brake, a constitutional measure that limits federal government borrowing to 0.35 percent of gross domestic product (GDP).

The urgency of this conversation is amplified by increasing U.S. expectations that the EU contribute more significantly to its own defense expenditures.

As part of its NATO commitments, Germany has undertaken plans to allocate 2 percent of GDP to defense spending by 2027. The government has established a designated €100 billion fund to modernize its military capabilities in light of Russia’s invasion of Ukraine in 2022, but much of this allocation is already earmarked for future projects.

To meet NATO’s requirements, Germany anticipates needing an additional €30 billion annually.

In discussing potential reforms, Merz indicated that addressing structural issues, particularly related to spending on refugees and unemployment benefits, would be necessary before considering changes to the debt brake.

"The key answer for everything is economic growth," he noted, underscoring that strengthening the economy must take precedence in any governmental policies.

The political landscape post-election may complicate Merz’s agenda, as his most likely coalition partners—the Social Democratic Party (SPD) and the Greens—have previously advocated for adjustments to Germany's borrowing limits to tackle the country’s challenges effectively.

Coalition negotiations are expected to focus heavily on budgetary discussions.

Merz also indicated that if elected, he would not continue the tenure of Robert Habeck, the current Economy Minister from the Greens, affirming a preference for separating economic policy from climate policy.

"Not only the economic policy of Robert Habeck will not be continued, the structure of this ministry with economy and climate under one roof will also be discontinued," he stated.

Additionally, Merz articulated a stark stance on migration, declaring intentions to tighten border controls from the outset of his term and to detain asylum seekers deemed dangerous.

He pointed to the necessity of concluding migration agreements, echoing the strategies employed by Italy’s Prime Minister Giorgia Meloni.

The complexity of coalition dynamics and differing migratory perspectives with potential partners like the SPD and the Greens may present challenges as Merz aims to implement his policies in a possible new government.