Berlin: Merz defends 2026 budget and Franco-German council operations
Chancellor Friedrich Merz defended the 2026 budget in the Bundestag, with 11.5 billion euros in aid for Ukraine and ten billion euros in relief for the economy, while the joint defence council with Paris enters its first operational cycle.
Berlin opened debate in the Bundestag on the 2026 budget, with Chancellor Friedrich Merz framing his policy around three pillars: the competitiveness of the economy, the country’s security, and solidarity within the democratic framework. The details confirmed two priorities flagged earlier: 11.5 billion euros in aid for Ukraine and close to ten billion euros of overall relief for private households and businesses during the first quarter. At the same time, the Franco-German Council for Defence and Security, formed on 7 May in Paris during Merz’s first foreign visit as chancellor, enters its first full operational cycle.
For Serbia and the region, Germany has been the largest trading partner and largest direct investor for the tenth year running, with firms employing more than 80,000 workers in Serbia’s manufacturing sector. Any stabilisation of German industrial policy is directly reflected in the volume of orders flowing to Serbian sub-suppliers in Vojvodina, Sumadija and Pomoravlje. Merz’s statement that German industry remains in a “very critical” state, as he put it in January, has, over the past four months, already led to pauses in some investment cycles in Nis and Kragujevac, confirmed in March at a meeting of the German-Serbian Chamber of Commerce.
The new chancellor’s position in the Bundestag is not easy. According to Forschungsgruppe Wahlen data for April, only fifteen percent of Germans said they were satisfied with his government’s policy, the lowest level for a new government in its first hundred days since Schroeder’s second mandate in 2002. Opposition from both left and right has used that drop to attack key budget items, particularly the Ukraine aid package, which Bundestag conservatives broadly support but want monitored more strictly.
Three priorities and one constraint that holds them back
The competitiveness pillar, which Merz often calls “the compass of his mandate,” covers structural reforms, lower energy prices, tax cuts, and the removal of red tape. Five main industrial sectors, automotive, chemicals, machinery, steel and pharmaceuticals, will, over the next eighteen months, gain access to a new package of transitional guarantees worth eight billion euros. The security pillar is traditionally the least contested part of Merz’s programme: the budget foresees a rise in defence spending to 2.4 percent of gross domestic product, above NATO obligations and in line with the strengthened Franco-German coordination mechanism.
Three economists at the Brussels think tank Bruegel, led by Guntram Wolff, in a short analysis judged that the main risk for Merz’s economic policy is “the speed of implementation, not the structure of the measures.” In their model, Germany in the current quarter recorded growth of 0.2 percent quarter on quarter, a technical stabilisation after last year’s stagnation, but below the expectations Merz’s own economic team set out in January. Reform of the social assistance system, with the transition from Buergergeld to a basic support framework for the unemployed, will be the Merz government’s headline measure during the summer months, with the final vote scheduled for the second half of July.
Paris stalls, Berlin does not want a pause
Merz’s statement that he is counting on Paris finding a stable majority before summer comes at a moment when the Franco-German Council for Defence and Security has just opened its first technical working cycle. The body, set up as a permanent coordination framework between Paris and Berlin, first meets at the level of defence ministers and has already drafted a plan for the balanced financing of the joint tank system, the “main combat platform of the next generation,” and the system command aircraft, the “combat aircraft of the next generation.”
Thomas Lieck, senior researcher at the Munich-based Stiftung Wissenschaft und Politik, told Bild that “any political pause in Paris could delay mandatory intergovernmental consultations for the rebalancing of the programme by fifteen to twenty percent, which for German and French defence companies is not a margin but a strategic risk.” That underlines that the success of Merz’s mandate also depends in part on Lecornu securing a majority for the French budget, to which the obligations under the joint industrial plan are tied.
The next concrete date is the meeting of German and French defence ministers in Berlin, scheduled for 12 June, where formal confirmation of the medium-term plan is expected. The plan covers the distribution of orders between German and French suppliers, with hopes the topic will be opened ahead of the NATO summit on 24 and 25 June.
