Eye to the chancellor: interviewing Friedrich Merz

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The Economist.

Hello and welcome to the Intelligence from the Economist. I'm Rosie Blore.

And I'm Jason Palmer. Every weekday we provide a fresh perspective on the events shaping your world.

Taiwan is facing a major problem with Chinese infiltration of its armed forces. It used to be mostly veterans who were targeted. Now younger soldiers are also facing psychological warfare.

And the humble backpack, or as I'm now supposed to call them, rucksack, has not historically been a fashion accessory. Move over pragmatism. Some people are as fanatical about high end bags as others are about sneakers and as ready to pay up.

But first, With less than two weeks until Germany's general election, Friedrich Metz is the frontrunner to be the next Chancellor.

Tanke is here. Danger.

In the polls. Metz's Christian Democrats are well ahead of the current ruling party led by Chancellor Olaf Scholz. Meanwhile, the hard right alternative for Germany party, the AfD, is on track to double its share of MPs.

We thought we'd sit at a table around the corner, just up in the corner there, set up shop.

As Mertz approaches the closing days of his campaign, our editor in chief Sani Minton, Beddoes Europe editor Chris Lockwood and Berlin Bureau chief Tom Nuttall sat down with him to discuss his vision for Germany.

So Friedrich Merz, thank you so much for joining us. You are overwhelming favorite to be the next Chancellor of Germany. And thank you for joining the Intelligence.

Thank you for the compliment.

I wanted to start Zanny.

Chris, we're here in the studio now. Hello.

Hello, Rosie.

Hello.

Friedrich Mertz is likely to be Germany's new Chancellor. What's he like?

Well, he was extremely relaxed. Bullion even. I mean, I've met Friedrich Merz several times before, but never for a formal on the record interview. And I wasn't quite sure what to expect because he has a reput of being slightly prickly. But I have to say, the man that we sat down with for an hour on Friday was relaxed. He was quite funny. He was confident. You can tell that he's ahead in the polls. And he was actually, I think, someone who was willing to admit the scale of Germany's problems. That was the good bit. I was sort of less impressed perhaps by the scale of some of his answers, but broadly I was. It was a really interesting conversation that this is a man who sees victory ahead and has, I think, a real agenda. I don't know. Chris, what did you think?

Well, it was my first time doing a proper interview with him. I only met him very briefly before, and I was, I have to admit, slightly disappointed. He gets the problems, but there was a lack of precision in my mind to many of his solutions. There are enormous problems faced both by Germany and by Europe as a whole, but most of what we heard was a bit too small bore, I thought.

So you talk about the scale of the problem, let's talk about those problems and the economy. What did he have to say about that?

Well, his assessment was extremely bleak.

The situation of the German economy is at least as serious as we had it 20 years ago. We had two years in a row of recession in 2002 and 2003.

Germany's been in recession for two years, probably going to be in recession this year.

So the business model of this country is gone. This economy is no longer as competitive as it should be.

You said that the German business model is completely broken. And by that he means three main things I would say. One is the idea that Germany is a big manufacturing and exporting power, with China in particular as a big market. That's gone away. China is now a competitor, not a market, increasingly. Second, that Germany could depend on pretty much limitless cheap gas from Russia. That's gone. And thirdly, that Germany can shelter underneath the American security umbrella for very. And that assumption has gone. NATO allies, Germany in particular, are being called on to pay for a lot more and they're not doing it. And he didn't offer very much in the way of solutions.

Why we have to implement serious reforms on the labor market, on our energy supply and on competitiveness in general.

It was war on red tape. It was investment, yes, but not really explaining how it was getting people back to work by purging unemployment rolls. But, you know, that was about it.

What about tariffs, Anny?

So he was, I thought, strikingly punchy about tariffs.

If the Americans put in place tariffs, we should have the right answers, as we did, by the way, in 2018.

It was interesting that he cited the European response to Trump's tariffs in Trump one approvingly. And basically, I think his point was if the Europeans together, united, hit back with well, targeted tariffs, then that can be very effective.

The tariffs retaliate with the tariffs. Exactly. I give you this example. We had it with aluminium and with Steel in 2018, and the European answer was jeans, whiskey and motorcycles. So. And within six weeks, the Americans agreed with the Europeans that we should drop all the tax, all the tariffs and. And the. And the open market was there again.

So that's a model this time.

Absolutely.

What about the area I was on the economy, actually most disappointed about was the debt break, which is a bugbear of mine. I think it's one of the literally most insane aspects of German economic policy that they have a constitutional amendment that prevents effectively deficit financing. For years it has prevented them from adequately investing in infrastructure. And now in a European environment where everybody knows, including Friedrich Merz, that there has to be a significant increase in defence spending, this stricture that comes from the debt break is enormously important. And privately, even in his own party, people are talking about the need to.

Modify the debt reg to increase the European wide indebtedness is, in my view, not the best option because in general it's not allowed by the European treaties, there is a strict limitation for exemptions only, and this is not an exemption. This is our daily business for years or decades now ahead. So let's stick to the rules of.

Our European, but to us in public, two and a half weeks before an election. I thought he was lamentably unwilling to be creative about that.

But of course, the scale of the problems isn't just economic. On defense, there's a huge question now with Trump in the White House about what is the future of European security and the future of NATO. What did he have to say on that?

He was much more cautious than I had expected, or indeed than I'd hoped for. This was, after all, a man who once said, peace can be found in any cemetery. It is our freedom that we must defend. He was a man of striking rhetoric, tough, hawkish rhetoric in the past, but now, as kind of chancellor in waiting, I thought he was cautious about committing to step up support if the Americans under Trump scaled back their support to Ukraine. But if they cut back, should Europe step up?

Well, I don't like to answer questions which we begin with an if. So let's wait and see what they are proposing and then we will start the debate.

I then said, would Germany commit, as Emmanuel Macron has suggested, to peacekeepers? He was also quite cautious about that.

This could be an option, but only after a very reliable ceasefire in Ukraine.

Not before on NATO, he was cautious and that didn't surprise me. Can you imagine Ukraine joining NATO, even if it does not have control?

I can't imagine a lot, but it's too early to talk about that publicly. I would like to see what the Americans are planning to do and we are still dependent on the American security promise. And that's the reason why I'm really looking forward to hear them, to see them and to look what they will propose, and then we will have the debate.

Would you like to see Ukraine in NATO or not?

I would like to see them in the longer perspective as a country in peace, in NATO, but this is too.

Early from today's perspective, Putin won't welcome that. But overall, I was struck, and I don't know, Chris, whether you agree with me, but I was struck that he was much less strong on Ukraine than I certainly than I'd hoped he would be.

Yes, I agree. I was expecting a lot more toughness because, you know, this is a crucial moment. We're heading into the election. It will shape the European response to whatever Trump has to say about Ukraine very soon. And this would have been a great opportunity for him to do a bit more.

Now, maybe we'll hear it this week at the Munich Security Conference. Vice President JD Vance is coming and President Trump's special representative, Keith Kellogg. Friedrich Mats will be at Munich, as indeed will Olaf Scholz, the current Chancellor. Maybe we'll hear something a bit more specific, but for now, this was clearly a man who was being cautious.

And of course, there's a spending part of this as well. There's a NATO requirement for all countries to spend 2% of their GDP on defence. Germany is not really meeting that. They were far below it. They set up a special fund after the invasion to get which they Just about do. But the special fund is nearly run out. So how do they cope with dealing with that once the special fund runs out? And indeed how did they go from the 2% to the 3 or 3.5% which everyone in NATO accepts is what NATO members are going to have to spend? Well, he wouldn't answer that at all. He wasn't interested in relaxing the debt rate for it. He wasn't interested in money being provided through a European mechanism, another sort of debt instrument like we saw after Covid. So there was no real commitment there to doing what will surely be an necessary to move defence onto a much higher level.

We've talked a number of times on the show about the rise of the AfD, the far right party, and its popularity amongst German voters. Now, Mertz and the CDU came under fire recently for appearing to adopt some of the AFD's solutions. What did he have to say about that?

Well, he has been under a lot of pressure. A couple of weeks ago he pushed a motion through the Bundestag, the German parliament. This is a non binding motion, but still carried great weight. And the only reason that it could pass is because he relied on the votes of the AfD, the Alternative for Germany, the pretty hard right outfit, which all other parties in Germany and even his own party have always said they won't do any kind of business with. Now this isn't technically breaking the rules because they didn't take them into government, but there's always been an understanding that you wouldn't even work with them to the extent of relying on their votes. So he sort of broke that rule. And there've been huge demonstrations against him and a lot of disquiet even in his own party about it. So that was quite strong.

Except I thought, actually this was one of the most striking parts of our conversation. And he was pretty categorical. He said, absolutely, you can't work with them and that he would like to see the AFD out of Parliament. But the way to vanquish the AfD, the way to deal with this populist hard right threat, was to deal with Germany's problems. And he laid the stakes out to me, I thought, in pretty stark terms.

Being unsuccessful is not an option for me. We have to be successful within the next legislature of our parliament. And I definitely decided to do everything what I can to bring together government with a government which ends the public arguing on all the issues and which is really deciding things in Germany into the right direction.

This is kind of a last chance for Germany.

This could be one of our last opportunities to resolve the problems before we are having the populist in a majority.

This election is going to be hugely important, not just for Germany, but for Europe. You've now spent time with Metz. Is he up to the job, if he gets the job of Chancellor?

Well, there's a lot good about him. He's determined, he's tough, he's pro free trade, he's a proper Atlanticist. He understands business. There's a lot good there. He's determined. He's been trying for ages to get this job and now he looks like he's about to get it. But on the big picture, well, I was a little underwhelmed. We want him to be bolder. Let's see if once he gets power, he is bolder. So far, what he was suggesting didn't, to me, seem to measure up to the task ahead.

I'm going to be more charitable than you, Chris, on Friedrich Matz, not least perhaps because I really want Germany to have a leader who succeeds. I think he understands the nature of the challenges Germany faces. I'm not sure that he recognizes the scale of radicalism required, but what I am sure of is that he's not giving a sense of that to the German public. And that is a problem, because if Germans think that a little bit of tweaking to business as usual is enough, which is what I think they think now, he's not going to have the mandate to push through the kinds of reforms that are needed. And that's the real challenge right now. Germany is in certainly the most difficult position it's been in in a quarter century, and it needs radical reform. And I'm not sure that he is prepping Germans for the kind of radical reform that's needed.

Zanny, Chris, thank you so much.

Thank you.

Thank you.

And you can see our poll tracker and follow the latest news on Germany's election online@exter.com.

In 2021, Gao Anguo, a retired Taiwanese lieutenant general, posted a. He wore fatigues and a beret, his eyes scanned back and forth as he seemed to read an autocue, his face otherwise expressionless. He called the ruling Democratic and Progressive Party a traitor group that had sold Taiwan out to America. And he foretold a sacred mission that China would forcibly reunify with Taiwan amid a righteous national uprising. At the time, the video didn't draw much attention. But last month, Mr. Gao was indicted for military espionage. Prosecutors allege that he and five others used drones to spy on Taiwan's military drills and fed the footage to China and rallied an armed group to help China's army with that invasion.

Mr. Cao is the latest and highest ranking veteran of Taiwan's armed forces to be accused of spying for China. But he's not the first.

Alice Hsu is the Economist's senior China correspondent.

Taiwan is facing a major problem with Chinese infiltration of its armed forces. Last year, Taiwan's courts prosecuted 64 people for alleged Chinese espionage, and two thirds of those people prosecuted were current or retired military personnel. These prosecutions have increased fourfold in the past four years, and Taiwan's government is calling it an unprecedented challenge.

I suppose it's not surprising that there should be espionage between these two countries.

It's nothing new that China wants to infiltrate Taiwan's armed forces. After all, the two sides have been trying to spy on each other for about 100 years, since the beginning of the Chinese civil war. But this really matters right now, because Taiwan is under growing Chinese pressure. There are regular major Chinese military drills where the People's Liberation army surrounds Taiwan with its warships and planes. It enacts mock blockades. And Taiwan is also facing diplomatic isolation and a lot of uncertainty about whether America will come to its aid. American intelligence officials have said that Xi Jinping, China's leader, wants the People's Liberation army to be ready for invasion by 2027, which is pretty soon. But even before that, China is actually already affect Taiwan's armed forces from the inside. And lately we've seen that China's infiltration attempts are changing in both scope, in terms of who they're targeting and tactics, the way that they get people to collaborate.

So what's going on there? What ways are they using?

Well, in the past, China's intelligence agencies often targeted older veterans. So retired military personnel, many of these retired personnel are older. They often have a more Chinese nationalist worldview. They're against Taiwan independence. They don't like the ruling party, which cut their pensions in 2018. And a lot of military veterans feel like they are disrespected in Taiwanese society.

So that's the motivations to cooperate, I suppose. But how are Chinese intelligence agencies actually contacting recruiting people?

A lot of retired military personnel, they'll end up making trips to mainland China. They go because they want to visit their ancestral hometowns, they want to meet relatives, or maybe they go on business trips. And when they're there, they often meet middlemen or Chinese agents who befriend them. And at first it's just, let's have a meal together, let's become friends, tell me about your family. And then it evolves into, oh, do you want to go on a golf trip with me? Do you want to go on an all expenses paid vacation to Southeast Asia? They build relationships and they build trust until these guys are thinking, well, these Chinese agents are my friends and the dpp, the ruling party, is my enemy. And then they start to become more open to sharing information. And traditionally in the past, a lot of Chinese intelligence agencies have then used these retired personnel to then recruit younger active members of the armed forces.

And if they're recruiting older members for spying purposes, where's the benefit in recruiting the younger kind of rank and file ones?

Well, the best guess of most people here in Taiwan is that China is using these younger soldiers for psychological warfare. And the reason why they think that is because one thing the Chinese intelligence agencies have been getting younger soldiers to do a lot, especially in the last few years, is to film these surrender videos. So allegedly they get members of Taiwan's armed forces to put on their uniforms and then film videos. Sometimes they have a People's Republic of China flag behind them and they say things like, I don't want war. I vow allegiance to the motherland, I don't want to fight. Essentially, they're videos where Taiwan's soldiers are promising that if an invasion happens, they're just going to surrender.

I can kind of see how these tactics work with the older generation, as you say, more sympathetic to the mainland's cause. But it's not clear to me why younger recruits might be vulnerable.

The sources I spoke with told me China has been targeting a much broader swath of grassroots rank and file military personnel in recent years. And the best way to get them is basically through money. A lot of these younger soldiers, they're not Chinese nationalists. They likely have a much stronger Taiwanese identity, but they are often in difficult financial situations. A lot of them are in debt. A lot of them go online looking for ways to make money. They get into online gambling, they go on gaming platforms, they contact underground lenders. And some of these underground informal lenders in Taiwan are linked to criminal gangs that are also on very friendly terms with the mainland. And in some cases, it is when these young soldiers are entangled in these debt networks that the lenders will tell them, hey, you owe me a bunch of money, but I will reduce some of your debt if you give me some information. Take a picture of a training manual, film a video of your training base, or make a 20 second video saying, I'm loyal to the motherland and I don't want a war. And in exchange, the prosecutor I spoke with said that the starting price for bits of information like this is up to 200,000 Taiwan dollars. That's about US$6,000 for a naive young soldier.

It's easy money, but the overall goal here. You mentioned the phrase psychological warfare. How is it likely to be deployed, all of this stuff? Or is it being.

The investigators and prosecutors in Taiwan are finding that China's collecting a whole bunch of these surrender videos, but they're not, not publishing them anywhere. And some people here speculate that it could be China is saving all of this up for the day when it does want to trigger a crisis in Taiwan, then it can play these videos and tell ordinary Taiwanese people, look at this. Your soldiers are not even going to fight. Your army has already agreed to surrender. When I say psychological warfare, what I mean is that China is trying to spread defeatism. It wants to make Taiwan soldiers and civilians feel like resistance is futile. You might as well not fight. And actually, that psychology is also part of China's most recent recruitment methods. My sources told me that some of the people who've been recruited by Chinese agents in the last few years have had this encounter where an agent will tell them, I know everything about your deployment orders. They'll really scare that person. And that person will start to feel like, well, you know everything about me. Taiwan has no secrets. The PLA is so powerful. And then the Chinese agent will say, yeah, that's right, and war is coming. But if you collaborate with us now, I promise to keep you safe.

But I guess the question is the sort of interplay between the susceptibilities, the vulnerabilities of all of these military personnel versus how much the psychological warfare is going to have its intended effects on the people at large.

Yeah, that's right. And if you first just look at the military personnel, there's two ways to look at this. Infiltration on the one hand, and it's alarming that it's happening, but it's good that Taiwan security agencies are catching these cases and trying to stop them. And then when it comes to broader society, I'm often worried when I'm out on the streets interviewing people, asking them, do you think Taiwan is ready to fight China? And oftentimes I just get a kind of skeptical look and a laugh, and people say, are you kidding? If China comes, we're dead. There's no way. And so I do think that the Taiwanese government has a lot of work to do, and the Taiwanese armed forces have a lot of work to do to bolster public confidence in them and public will to come together and resist. But ultimately we won't know how successful China's infiltration attempts are until the day when a crisis does happen. And then we will see if Taiwan society and armed forces are resilient enough to come together and to fight back.

Alice, thanks very much for your time.

Thanks. J.

For many years, backpacks were not considered cool. They were looked down upon, especially in office settings. Anybody with a sense of fashion would be caught dead with one.

Johnny Williams writes about culture for the Economist.

But in recent years they have become quite popular and people are gravitating toward them. You'll see them in offices and coffee shops and airplanes, sometimes in the boardroom. Sales of backpacks have soared over the past two decades, and they hit a new high in 2022 in America when workers return back to the office after COVID 19.

For my part, I'm a little surprised by this trend in the sense that cool or not, backpacks have always been a really handy way. I've certainly been using them long before this peak came.

Me too. I've been a fan of backpacks since I was at uni. But Jason, what kind of backpack do you have?

I have one called Weather Goods.

Do you know familiar with that brand?

It might not be the cooler end of things.

There's a whole set of boutique brands that have sprouted in the past couple decades, and they have become collector's items where people will snatch them up literally a minute after they drop. But backpacks have become really, really popular. And you're on the up and up right now.

I might get into the trendier versions, but for me it's always going to be the pragmatic rather than the fashion end of things.

Yeah, and for many people it is a matter of functionality, but it's becoming a blend with form as well, where people care a lot about how zippy the zippers are, how plush the straps are, the number of compartments. There's a whole community of online bag reviewers who spend hours and hours dissecting every detail of these bags, and in a sense, they're being considered almost like sneakers. They were once a niche product worn only by athletes, but they have snuck their way into popular culture and they're sitting down sidewalks and catwalks. The same thing is happening with backpack.

So what is it that's changed here from it being a wouldn't be caught dead to now want to be caught with this particular one?

There's several trends that have been taking place. One is workplaces have become more casual. It's a lot more acceptable to wear a backpack at work. There's also the element of backpacks becoming more fashionable. Makers are making them more sleek. They're making them with materials such as wax, canvas, and leather that gives them a more elevated air than just the strappy nylon that you would expect to see on an outdoor hike. There's an element also of airlines increasing their baggage fees. And so people are anxious to be able to get more stuff into an airplane. And the most comfortable way to do that is with a backpack. And there's longer commutes into the office, too. Some people who have moved further away during the COVID now carry a backpack because they have more stuff to do with them in the city. And there's finally a part of it that is really almost like a fashion statement.

It's interesting because it sounds as if it's not an either or with the practical versus the fashionable. It's like the fashion is catching up with the fact that these things are just practical.

And they have been practical for millennia. But they really started evolving around the 20th century. That's when outdoorsmen started focusing more on the comfort of carry. And around 1938, Mountaineer added zippers to replace heavy straps and B.O. buckles. That was a big game changer. It made access to backpacks and their contents a lot easier. And then in the 1960s, Murray McQuarrie and Jan Lewis founded JanSport. And anybody vaguely familiar with backpacks knows about jansport because they're ubiquitous in schools, in universities. So that was the introduction for a lot of people into backpacks.

Oh, yeah. I grew up with a jansport bag.

But then again, those were designed for students. And the new makers, right now, they are really innovating and coming up with new ways of carrying stuff.

Go on, tell me about the innovations in this space.

One of the parts of it is they're coming up with new materials. For example, there's a material called X pack. It's made of the same stuff that sailboats, sails are made of. And it's known for being very durable. It's known for shedding off water really well. And it's become very trendy among backpacks right now. And then there's a whole universe of boutique makers that have sprouted over the years. I spoke with a group of them called pacolab in Ukraine, and it's this couple, and they stitch together fabric pieces even as missiles are landing in Kyiv, where they live, and they have to deal with power outages and everything and supply chain problems. But their backpacks, which cost about $400 at least in the market, are so popular that they have to implement a lottery system for people to get them because they're in such high demand. At the same time, fashion brands such as Chanel and St Lawrence have taken notice and they're also jumping in the backpack game. In 2023, Dior partnered with Mystery Branches. It's a bag designer that was best known for making backpacks for hunters and firefighters and soldiers. And they created a limited edition bag that cost about $4,000.

Johnny, thanks as always for your time.

Jason, thank you.

Foreign.

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