01. 10. 2025
AUTHOR: Linda Kalcher
This text was originally published by Table.Media.
Chancellor Friedrich Merz pledged that “Germany is back” in Europe, already preempting/alluding to the fact that he seeks to build a strong personal profile on foreign affairs. Inevitably, Chancellor Merz will be compared not only to his predecessor, Olaf Scholz, but also to former Chancellor Angela Merkel, who used to be called “Queen of Europe”.
To make this more than a slogan and get recognition from fellow EU leaders requires three key qualities: credibility, reliability and personal engagement across topics. This means: no more abstentions or uncertain positions, a situation that was called ‘German vote’ under the previous government. No ministers questioning or undermining the coalition treaty in public or private meetings. And ultimately, it means Merz himself needs to be willing to engage constructively on all topics: from the rule of law, to defence and security, to the EU budget and yes, to the debate on industrial competitiveness and the climate target for 2040.
For Germany, the stakes are high. The country is particularly exposed to both US export tariffs and competition from subsidised Chinese products. German GDP fell 0.3% following the increased tariffs, with exports down 0.6% and investment in machinery dropping 1.9%. Allianz Trade estimates that up to 25,000 manufacturing jobs could be lost, particularly in the south of the country due to imported Chinese goods.
At the same time, energy prices rise as Russian gas is replaced by expensive LNG, causing additional pressure on many companies, especially the energy-intensive ones. Companies from steel to chemicals now warn that high energy costs threaten their international competitiveness. These challenges cannot be solved nationally. Germany can only secure affordable energy, strengthen its industries, and reduce exposure to volatile fossil fuel markets through a joint European approach. Investments flow into reliable markets, and it’s the ‘green’ investments that the German economy needs the most to compete with China. Investors don’t appreciate flip-flopping on the EU’s decarbonisation targets, they expect predictability.
Reaching a European 90% climate target for 2040 requires investments but also brings savings: less fossil fuel imports, less material and technology imports through more manufacturing made-in-Germany and circularity. At the EU level, phasing out fossil fuels could save up to €856 billion on gas, oil, and coal imports by 2040. This also translates into predictable costs for German companies and lower household energy bills. Decarbonising the power sector alone is set to reduce wholesale electricity prices by 12 per cent by 2035, adding another boost to competitiveness. These savings are critical for an export nation where energy costs play directly into global prices.
At the same time, agreeing on a bold 2040 target provides reassurances for investors. Aligned with the Clean Industrial Deal, this offers German companies a business case for growing net-zero industries and technologies at home. Scaling up domestic production of batteries, heat pumps, and renewables could create over two million jobs across Europe, over 300,000 in Germany. The country has already shown potential to grow industries like batteries, heat pumps, and green steel, demonstrating how industrial and climate policies can reinforce each other. These are the building blocks of Europe’s next industrial era.
These building blocks and the 2040 climate target are now getting discussed at the European Council on 23-24 October after requests from Hungary, Poland, Italy and France that Germany ultimately backed. It is now up to Chancellor Merz to showcase if he has the three qualities of credibility, reliability and personal engagement to prevent a political deadlock on the target. Some countries clearly brought it to the European Council to force a decision on the target through unanimity, which would give them veto powers, thus allowing them to ask for significant concessions. The chancellor can work with other leaders to prepare a constructive landing ground for the EUCO that allows environment ministers to adopt the target and the EU’s pledge for 2035 (Nationally Determined Contribution) in time ahead of the UN climate summit in Belém. Setting out a robust European framework now is cheaper and safer than delaying and facing higher costs later, both economically and politically.
The German government can turn economic concerns into a competitive edge. But this requires clear leadership at the European level. Germany’s credibility as Europe’s industrial and political powerhouse will be judged by whether it helps set the direction of Europe’s industrial strategy that aligns with the climate target for 2040.
