Watch the special address by Friedrich Merz, Federal Chancellor of Germany, at the World Economic Forum Annual Meeting 2026 in Davos, sharing insights on Germany’s role in global dialogue, cooperation and strategic priorities.
German Chancellor Friedrich Merz used his Davos address to argue that the post–Cold War order has given way to “a time of great power politics,” requiring Europe to pair values with hard capability: “We must also recognize the value of our power.” He framed European strength around three pillars—security, competitiveness, and unity—and warned that “a world where only power counts is a dangerous place,” invoking Germany’s 20th-century history as caution.
Merz endorsed NATO as Europe’s “strongest competitive advantage” but stressed sovereignty and territorial integrity amid U.S. pressure over Greenland. Germany, he said, will support Arctic security through NATO while backing talks among Denmark, Greenland, and the U.S.; “any threat to acquire European territory by force would be unacceptable.” On trade, he rejected protectionism, calling for rules over tariffs and pushing to advance Mercosur and new EU deals with India, Mexico, and Indonesia.
Domestically, Merz set two goals: restoring German growth and making Europe a key geopolitical player. He announced defense spending rising to 5% of GDP and €500 billion for infrastructure, alongside deregulation, cheaper energy, capital-markets integration, and “AI gigafactories.” In discussion, he estimated only “10%” of Draghi’s competitiveness proposals have been implemented, arguing Europe must now “walk the talk.”
Mr. Chancellor. So great to have you back in Davos. Last time not as Chancellor, but this time, heading the largest economy in Europe. It's really great to have you here. You assumed office in May at a moment of profound change. Geopolitical tensions are high. Trade is fragmenting. Security has become an urgent priority. And technological change is reshaping our economies at remarkable speed. Europe must respond to these challenges. And Germany, as Europe's economic engine, carries a particular responsibility, shaping the continent's future. I know after your speech here, you will be going to Brussels, in another meeting. But as you saw also, Mr. Chancellor, things do happen in Davos. There are processes and I guess the discussions around Greenland is going to be a little bit easier this evening in Brussels. Since taking office, you have sent important signals, a shift in fiscal policy, significant investments in defence and infrastructure and a more active German role on the international stage. As Mario Draghi has warned, without bold action, Europe risks a slow agony. This moment, therefore, calls for leadership that provides clarity, confidence and resolve. We very much look forward to your speech and thank you for your very important leadership in challenging times for Europe and Germany.
Now, president, ladies and gentlemen, the comment piece up here on the Magic Mountain in Davos is at stark contrast to a world whose old order is unraveling at breathtaking pace. Let me share with you how the new German government is looking at these tectonic shifts and how we are addressing them. These shifts have the most profound ramifications for our freedom, for our security, and for our prosperity. In these weeks and months, we are witnessing a new era has already begun. Russia's war of aggression against Ukraine has been the most drastic expression so far. But change runs much deeper. China, with strategic foresight, has worked its way into the ranks of the great powers. The United States global pole position is being challenged in Washington, reacts by radically reshaping its foreign and security policy. We have entered a time of great power politics. The international order of the past three decades, anchored in international law, has always been imperfect. Today, its very foundations have been shaken. This new world of great powers is being built on power, on strength. And when it comes to it, on force, it's not a cozy place. We do not have to accept this new reality as fate. We are not at the mercy of this new world order. We do have a choice. We can shape the future. To succeed, we must face harsh realities and chart our course with clear eyed realism. Two days ago, Mark Carney said, in this hall from this place, we must no longer rely only on the power of our values. We must also recognize the value of our power. I share that view, and when I look into this room, into this hall, I want to say most of us share it. And that is a good starting point. European friends, if I may say so. Our power today rests on three pillars our security, our competitiveness, and our unity. First, we must invest massively in our ability to defend ourselves. And we are doing this. Second, we must rapidly make our economies competitive and we are doing this. Third, we must stand closer together among Europeans and among like minded partners. We are doing this as we forge ahead. We must never forget one thing a world where only power counts is a dangerous place. First for small states, then for the middle powers, and ultimately for the great ones. I do not say this lightly. In the 20th century, my country, Germany, went down this road to its bitter end. It pulled the world into a black abyss. So let us bear in mind our greatest strength remains the ability to build partnerships and alliances among equals based on mutual trust and respect. I remind you, after 1945, the United States of America inspired us Germans to embrace this logic. On this foundation, NATO became the strongest alliance in history. This is why we hold true this idea. Now. In recent days, the United States administration has vehemently demanded greater influence in Greenland. Washington has argued that this is an imperative to counter security threats in the High North. We welcome that the United States is taking the threat posed by Russia in the Arctic seriously. This threat is itself an expression of great power rivalry. It is aimed both at Europe and the United States. We experience it daily in hybrid attacks in the Baltic Sea and in Russia's Winter War against the people of Ukraine. We share the conviction that as European NATO allies, we must do more to secure the High North as NATO. This is a common transatlantic interest. Germany is doing just that. We are doing it in the framework of NATO, and we will do more. Our neighbors and partners in Europe, including Denmark and the people of Greenland, can count on our solidarity. We will protect Denmark, Greenland, the North from the threat posed by Russia. We will uphold the principles on which the transatlantic partnership is founded, namely sovereignty and territorial integrity. We support talks between Denmark, Greenland, the United States. On the basis of these principles. I have discussed this with President Trump. Prime Minister Frederiksen, Secretary General Mark Rutte and others. In these days, the aim of these talks is to agree for closer cooperation amongst allies in the High North and beyond. It is good news that we are making steps into that right direction. I welcome President Trump's remarks from last night. This is the right way to go. This is the right way, because any threat to acquire European territory by force would be unacceptable. And ladies and gentlemen, new tariffs would also undermine the foundations of transatlantic relations. If they are put in place, Europe's answer would be united, calm, measured and firm. As we proceed, we are guided by a clear compass. Firstly, in the new age of great powers, Europe must stand together resolutely and sovereignly. And secondly, we should not give up on NATO. At the historic NATO summit in The Hague last June, we created the material prerequisites for this. Europe will invest hundreds of billions of euros in its security. It was a remarkable transatlantic success. Now we must repair the trust on which the alliance is built. Europe knows how precious it is. We feel deeply that it can be the United States strongest competitive advantage in an age of great powers. Democracies do not have subordinates. They have allies, partners and trusted friends. Let me paraphrase this in German in a few words we have.
We are entering in a new era of great powers. We are right in the middle of it. In this world, the winds are very harsh and this wind will give us threats. And that's what you are feeling and that we all are feeling. But we have to be very clear. This world, well, we are not subordinate to it. We can form it with our foursome. We have to be balanced. We have to be. We have to use our own strength. And that exactly we are doing exactly that. We are in massively investing in our own security. We are working on the competitiveness of our economies, and we are working together in Europe between European partners. And that will help us in these new times. And this will open up a new doors and will give new opportunities for all of that. And as far as our sovereignty is concerned, we will uphold that firmly with our neighbors. And our neighbors can build upon our solidarity. And although it's frustrating over the past few months to see the development of this transatlantic partnership, but we have to uphold it. And I would like to claim the principle of hope. And we as Europeans, we know how important it is to have that trust in NATO and in this era of great powers, the US will also have to count on that trust between us. And that is, our main competitive advantage for the for them and us. Well, dictators may have subordinate subordinates, but we have to be partners and reliable friends. And that is a sentence that will form the basis of our work. And we will work hard on it that that will not be forgotten.
Two goals. First, Germany has to regain economic strength. Second, we want to make Europe a key player again in global politics, economically and particularly in defense. We need to be able to defend ourselves and we need to do so fast. These goals are complementary economic competitiveness, competitiveness and the ability to shape global politics are two sides of the same coin. Germany can only lead the way in Europe if we are economically strong, and Europe's geopolitical influence and our defense capability largely depend on the continent's economic momentum. Ladies and gentlemen, our policies now need to be exceptionally ambitious and courageous. We must make progress in four simultaneously areas. We must continue supporting Ukraine in its fight for a just peace. We must become capable of defending ourselves on our own. In Europe, we want to reduce dependencies that currently make us vulnerable.
Enforce. We want to ensure that our economy can tap into its full potential for innovation and growth. This will only work if we work together as one European Union. And be assured, Germany pledges to take a special responsibility here. That is why we decided, right at the start of my tenure, to increase Germany's defense spending up to 5% of GDP. That is a huge increase, boosting our military. Our military capabilities means to assert our sovereignty by systematically strengthening our defense. We are reducing our economic and technological dependencies, and there is no room for isolationism and protectionism in this agenda. Instead, we are talking about strategically coordinated ties worldwide. Europe's trade ambitions are crystal clear. We want to be the alliance offering open markets and trade opportunities. We want to strengthen the rules for fair trade and level playing field. Europe must be the antithesis to state sponsored unfair trade practices. Raw material protectionism, tax prohibition and arbitrary tariffs. Tariffs again have to be replaced by rules. And those rules need to be respected by trading partners. On this the EU is making great progress. Mercosur has been signed. And by the way, I deeply regret that the European Parliament has put another obstacle in our way yesterday. But rest assured, we will not be stopped. The Mercosur deal is fair and balanced. There is no alternative to it. If we want to have higher growth in Europe, and most likely this agreement will provisionally be put in place in a few times. This time, the president of the European Commission will travel to India to establish the principles of a free trade agreement between the subcontinent and the European Union. I was in India a week ago, and I have no doubt whatsoever that the era of great powers presents an opportunity for all of us, and for all countries that favour regulations above arbitrary rule and see greater benefit in free trade than protectionism and isolationism. And Europe is joining forces with new partners, as you do see, in our efforts to finalize trade agreements with Mexico and Indonesia in order to make best use of these new partnerships, we need to put our house in order at home. We are aware of those problems. Both Germany and Europe have wasted incredible potential for growth in recent years by dragging our feet on reforms and unnecessarily and excessively curtailing entrepreneurial freedoms and personal responsibility. We are going to change that now. Security and predictability take precedence over excessive regulation and misplaced perfection. We must reduce bureaucracy substantially. In Europe, the single market was once created to form the most competitive economic area in the world, but instead we have become the world champion of overregulation. That has to end. I have therefore mobilised EU leaders to convene for a special summit on February 12th, at which we intend to set the course. Giorgia meloni and myself, we have formulated a set of proposals we would like to see addressed. Amongst them are some new ideas. We propose an emergency brake for bureaucracy, discontinuity for legislative work, a modernised EU budget putting competitiveness centre stage. We want to have a fast, dynamic Europe and a service oriented administration. I will insist that rapid progress be made, including on the capital Markets Union. We cannot allow our European champions to continue being dependent on capital markets outside Europe. Instead, they should be able to grow in Europe. They should be able to be financed in Europe, and they should be able to go public in Europe at home. We are making Germany competitiveness again as a place for business and investment, both in industry and our many small and medium sized enterprises. Let me tell you, the so-called mittelstand in Germany has to be reckoned with. We are providing more targeted support to innovators, removing obstacles from their path and making it easier for them to access capital markets. We have reduced energy costs. The focus for our electricity supply is on a combination of renewable energies, storage and modern gas power plants. In the coming years, you will see massive investments in state of the art power plants, power lines and heat supply. We will speed up efforts to expand and modernize infrastructure. €500 billion have been made available for this purpose. At the heart of our efforts lies digital transformation. Artificial intelligence requires industrial scale. Germany has one of the world's largest pools of industrial data. That is just one reason why we are investing in high performance AI gigafactories. Speeding up the expansion of data centres and creating the digital infrastructure for a competitive AI economy in Germany I. Our research and technological techno technology policy is guided by a new high tech agenda. We are global leaders in so many areas of cutting edge research. We want to ensure that innovation gets to market more consistently. Building industries of the future and whoever wants to invest in the future. Let me be clear. You will find a very strong partner in Germany. We want to be a leading investment location for global capital. Our policy is to mobilise private sector investments in infrastructure, high tech and industrial transformation with clear rules, strong institutions and long term reliability. Now, ladies and gentlemen, let the headlines of the day not confuse you. I urge you to look at the bigger picture. The world around us is changing at an unprecedented pace. The direction it takes must worry us. A world of great powers is the new reality. Europe has gotten the message. Germany has as well gotten the message. We must and will live up to these challenges. My government will do its homework and pursue an ambitious reform agenda revolving around security, competitiveness and European unity. Let us be inspired by what is maybe the most important lesson of enlightenment. Our fate is in our hands. It is in our responsibility and our freedom to shape it. This historic task lies ahead of us. Germany wants to play a key role in mastering it. Many thanks for your attention.
Thank you so much, Mr. Chancellor. Also for being able to, create some optimism. When this meeting is probably taking place against, the most complex geopolitical backdrop, maybe since the Cold War, maybe even since 1945. Let's start with the economic agenda. You said that Europe is world leader in our regulation. And I know that you have started reforms, with your coalition. I think you have the finance minister also on the first row. But, who are you going to have? Europe walk the talk. The report came last year. There was a lot of momentum, but, how much of the report has now been implemented? 400 pages. The report, how to make this happen? And you mentioned the decision in the European Parliament last night, for example.
Now, many, many thanks for this important question. We have two reports on the table. The one is Mario Draghi's report on competitiveness. And the second one is Enrico Letta with his report on the completion of the internal market. So we will see them both when we have our extraordinary meeting of the European Council in Belgium on February 12th. We invited them to come and Mario Draghi came to Berlin to see me on Tuesday this week. And we had a long discussion on how we could proceed. On his proposals for more competitiveness of the European Union. My guess is that only 10% of his proposals had been put in place over the last 18 months, so we have to do much more on that. And that's the reason why I really welcome that he will come and see us and we will have a very long debate. This is, so to say, an off side of the European Council. And we will only talk about competitiveness and only talk about how we can reduce red tape in this European Union and how we can make the way free for new investments. And my Minister of Economic Affairs and Energy is here as well. So we are seeing a lot of opportunities how we can do that. And my meetings during this divorce, economic forum in this year, making me extremely optimistic that there are many investors, many CEOs here, seeing Germany as one of the key places for further investments. So we have to do our work. It will not be easy. I mentioned the European Parliament. This European Parliament may not become the bottleneck for all these decisions. The EU Commission has the monopole for making proposals. This is not easy. The European Union was never easy, but it's the best answer to what we can do on the European continent in this changing world. And my optimism is even bigger after having seen so many people here around the World Economic Forum in Davos this year than it was when I came in yesterday.
No thank you. Thank you so much, Mr. Chancellor. I have been saying in some speeches also before Davos that one should not underestimate the industrial knowledge in Germany. So if you produce something and manufacture, you can also then pivot to something else as long as you know how to do, industry. But last year, German economy grew again after two years of recession, 0.2%, I guess, that's a little bit, anemic, to your taste. So, what are you doing to make sure, that you will see stronger numbers?
Well, point 2% is unsatisfactory for an economy like Germany. The foresight for 2026 has been a little bit improved by the IMF in these days, up to 1.1 and 2027, up to 1.5. But that is still relying on our investments on infrastructure financed by additional debt. So this is something we are seeing as a sort of momentum, publicly financed, but not an upswing, which is constantly looking into the future. We are faced with one big obstacle, and that is productivity. Productivity of the German economy is more or less low for a decade now. So we have improved that. And there are four obstacles in front of us in terms of costs. The one is energy. The second one is bureaucratic burdens. The third one is taxes, and the fourth one is labor costs. And we are addressing them all. It's not easy. For example, tax costs, as always, already been reduced by my government. We are going down to 10%. And additionally with other taxes on corporates, we will have around about 25 in Germany in four years time, five years time from now. That is a good number. But that is not enough. We have to reduce bureaucratic costs. We had some small successes last year, reduced bureaucratic costs for our industry last year by roughly 3 billion. But this is only a beginning. There has to be more on that. Labor costs is more or less the biggest issue. We have to reform our security system, pension, health, but also working time. The Germans are used to work only 200 hours less than, for example, Swiss companies and workers are working. We have to address that. And, the energy costs Caterina Rai responsible for had already been reduced fundamentally by roughly 10 billion for this year. But this is still not enough. The entire energy system has to be reformed and we are on our way to do that, even though it's not easy. After, for example, nuclear power plants have been switched off. This is a final decision. We cannot, recall that, but, we have to address it. New gas power plants will be in place. So this is work in progress in Germany to make us more competitive.
So, we we have the Board of Peace being launched here in a few minutes, but I have two short questions to you, and then we'll let you go. Mr. Chancellor, you know, when you meet with your European counterparts or friends, do you feel that they really understand the seriousness of the implementation of the Dragon Report? I do remember, you know, I think it's now more than almost 20 years ago, we had the Lisbon process. Europe was going to be the most competitive region in the world, and we just lost competitiveness after the report. Do you think this time is it, like, really serious?
Well, my impression is that my colleagues and partners in the European Council have really understood what is at stake. As I mentioned that in my speech, the world has so fundamentally changed over the last month and years that this is now really the time to move ahead and to change things. And what makes me optimistic is the pure fact that when I was in the European Parliament in the early 90s, we implemented the entire program for the internal market, which, was in place on January 1st, 1993. And this was a great momentum for the European Union. And we have to recall and remind ourselves that this is something which made Europe strong, and this was the best address to the world around us in terms of more competition and more competitiveness for the European Union. And my my feeling is that we are sharing the same momentum which we had in the 80s when we talked about sclerosis of the European Union. Now again, and that is something we will talk about. We will have a meeting of the European Council tonight in Brussels to talk about all these challenges. And, my colleagues and myself, we are really addressing that. And we really much we really hope that we will be able to catch up and to take our decisions which are strongly needed.
Such a good answer. I think we end on that optimistic note. Thank you for your leadership, Mr. Chancellor. Thank you for coming back to Davos.
Thank you.