Merz Buys Tomahawks as US Sets 20% Hormuz Toll

The week Germany agreed to station American cruise missiles on its own territory was the week the same ally announced it would take twenty percent of the value of every cargo crossing the Strait of Hormuz. Berlin would like those to be two separate stories. They are one story, and it is the defining one of Friedrich Merz's chancellorship: Germany is buying military weight from a patron whose price it cannot set, at a moment when it is quietly running out of money for anything else.

Merz confirmed the missile deal on 9 July at the NATO summit in Ankara. Germany will buy ground-launched Tomahawk Block Vb rounds — reporting puts the order at up to 400, worth more than a billion dollars — together with the Typhon launchers that fire them, sited on German soil and operated by German crews, with no US personnel attached. Boris Pistorius and Pete Hegseth signed the letter of intent on 7 July; Washington has committed to granting formal export approval in August; the deployment target is 2029. Merz called it the closing of "an important strategic gap in our defence," and on capability he is plainly right. A weapon with a range beyond 1,600 kilometres gives Germany a way to hold at risk the Iskander and Kinzhal systems Russia keeps in Kaliningrad, which no European programme currently offers it.

The awkward part is what the purchase concedes. Berlin's own line is that the Tomahawks are a stopgap until the European ELSA long-range strike programme matures, but Europe's record this year does not reward patience: the Franco-German fighter project FCAS has collapsed, and the flotation of the tank maker KNDS was pulled on 1 July at a €12 billion valuation. Alexandr Burilkov of GLOBSEC's GeoTech Center argues that Germany is "most acutely" exposed among European states, because it lacks France's industrial breadth in exactly the enablers — satellites, airlift, refuelling — that make a strike force usable. Guntram Wolff of Bruegel puts the political half of it more bluntly: "You cannot buy the security guarantee of Trump by buying fighter jets." Washington decides who gets deliveries and when; Switzerland's Patriots slipped precisely so that Germany's order could be prioritised. The Kiel Institute has made the same complaint from the other end, noting that Germany frames its build-up almost entirely as being a better ally to the United States, and says next to nothing about the gaps a departing America would leave.

All of that is true, and Merz's decision is still the defensible one, because the alternative on offer was a memorandum of understanding and a delivery date in the 2030s. The question is not whether he should have waited for Europe. It is what the dependence costs — and this week put a number on it. On 12 July Donald Trump reimposed the naval blockade of Iran and demanded "reimbursement" of twenty percent on all cargo shipped through Hormuz. Brent jumped 5.3 percent to $80 a barrel, WTI to $75.18. The International Maritime Organization's secretary-general, Arsenio Dominguez, rejected the toll outright — "there is no legal basis through which to introduce mandatory tolls simply to transit through a strait" — while the US Treasury warned that shippers who instead pay Tehran for passage are exposing themselves to sanctions, calling that "maritime extortion." Germany, the most trade-exposed of the large European economies, is being invited to choose which levy to fund. It has just agreed to buy its deterrent from one of the two parties setting the price.

The bill lands on an economy already absorbing the shock. Germany's leading institutes have cut their 2026 growth forecast to 0.6 percent from 1.3 and raised inflation to 2.8; petrol is back above two euros a litre. And this time there is no rebate coming. Daniel Muncaster of the German Economic Institute in Cologne argues that the 2026 oil shock will not repeat the pattern that cushioned West Germany in the 1970s: with Gulf exports curtailed, storage full and roughly $58 billion of infrastructure damage to repair, "Gulf producers cannot monetize high prices because they cannot deliver volume." The petrodollars that once returned as orders for German machinery will not return. Germany's $18.3 billion trade surplus with the Gulf, 7.3 percent of its total, is likelier to shrink than to swell. Germany pays the cost side of this crisis and collects none of the offset.

That pressure is already converting into policy. RWE's chief executive Markus Krebber and Michael Vassiliadis, who leads the mining and chemicals union IGBCE, spent the weekend demanding that Germany abandon its 2045 climate-neutrality target and fall back to the EU's 2050 date; Krebber's case is that the five-year German special path makes the country "only more expensive" as a place to do business "without climate policy effects." Michael Hüther, who runs the IW, wants the emissions certificates stretched out to match, and Gitta Connemann of the CDU wants a "realistic" timeline. The coalition agreement still says 2045 and Merz has not moved. But a target set in a cheap-energy decade is usually the first thing an expensive one throws overboard, and the union that would have to defend it is the one asking for it to go.

Set against all that, the money now pouring into German defence is extraordinary. Helsing, the Munich AI firm founded in 2021, raised $1.8 billion this week at an $18 billion valuation — the largest defence-startup round in European history, with Goldman Sachs Alternatives, JPMorgan, the Canada Pension Plan Investment Board and Lightspeed among the backers, and the company still majority European-controlled. Rheinmetall and Lockheed Martin will co-produce ATACMS at Unterlüß, the first such line outside the United States, targeting 600 to 800 rounds a year for European and Ukrainian demand from 2027. The Bundeswehr's procurement office awarded Rheinmetall and MBDA Deutschland several hundred million euros to build a naval laser, operational by 2029, after a demonstrator aboard the frigate Sachsen logged more than 1,000 successful engagements. DEUTZ has begun series production of Gereon ground robots in Ulm for delivery to Ukraine by late summer; Quantum Systems is sending ten autonomous Zetros trucks and ten MANDRILL ground vehicles to Ukraine's National Guard to be tested under fire; and Berlin is paying €90 million for 50,000 FPV drones from the Ukrainian maker SkyFall, among the largest such orders any Western government has placed. Projected to 2030, German defence spending reaches €183.6 billion against France's €76.3 billion — a gap wide enough that the French chief of defence staff, General Fabien Mandon, has warned publicly that France's edge in operational experience could be gone within five years, and his minister, Catherine Vautrin, felt obliged to answer that an army is not a budget line.

Now hold that column of numbers against the other one. On 9 July the Bundestag passed municipal relief worth €4 billion — spread across 2026 to 2029, which is €1 billion a year: €250 million for the most indebted towns, €350 million for eastern pension liabilities, and €400 million routed into fiscal equalisation for Bavaria, Baden-Württemberg, Hesse and Hamburg, which are not the places that are broke. German municipalities are running deficits of about €30 billion a year; the 2025 shortfall of €31.9 billion was the worst since reunification. In the Ruhr, Oberhausen and its neighbours are at the end of the line — no reserves, a tax base that left with the coal and the steel, social spending that only rises. Merz has ruled out tax increases and is pressing cuts to social law instead.

The same parliamentary week that bought the Tomahawks passed the health savings package, 318 votes to 284, and pushed it through the Bundesrat before the recess. Health Minister Nina Warken has now put the 2027 savings target at €18.8 billion: fees capped a full percentage point below wage growth from 2027 to 2029, higher co-payments on medicines, free cover for non-earning spouses restricted. The German District Association says the burden will land on hospitals and emergency services, the general practitioners' association expects rural care to thin out, the DAK insurance fund doubts the package will even stabilise contributions, and the German Midwives' Association called it "scandalous"; one hospital alone, the Diakonissen-Stiftungs-Krankenhaus in Speyer, projects a €5 million hole. Karin Prien, the family minister, wants to stop the state's child-maintenance advance once a single parent's child turns sixteen — Manuela Schwesig, who extended it to eighteen, refuses, and Heidi Reichinnek of the Left calls it a "low blow." Rearmament at €183 billion. Health at minus €18.8 billion. Cities at €1 billion. Someone collects the difference.

In Saxony-Anhalt, which votes on 6 September, the AfD stands at 41 percent against 26 for the CDU and 12 for the Left — and the state branch is formally classified as extremist by the domestic intelligence service. That prospect has produced a debate that would have been unthinkable a decade ago: constitutional lawyers arguing in public about Article 37 of the Basic Law, the federal coercion clause. Oliver Lepsius sets out the ladder — federal directive, notice of deficiency, then Bundeszwang, up to sequestering state functions or withholding money — should an AfD government refuse, as it has hinted it would, to apply the Königstein Key on refugee distribution. The political scientist Philipp Adorf's objection is the one that lands: federal coercion is precisely the story the AfD wants to be able to tell. The same instinct is spreading. The CSU's group in the Bavarian parliament will no longer rule out asking the courts to ban the AfD's Thuringia branch outright, and Thuringia's SPD interior minister, Georg Maier, thinks such a case would win — while his CDU counterparts, Andreas Bühl in Erfurt and Armin Schuster in Dresden, warn it would look partisan and hand Björn Höcke his martyrdom. The conservatives arguing over whether to outlaw their main rival have skipped the prior question of why he is winning. Oberhausen's insolvency is not a footnote to the AfD's 41 percent; it is one of its causes. Nationally the party now leads at 28 percent to 22 for Merz's CDU/CSU. In Berlin, Kai Wegner has abandoned his re-election bid before the 20 September vote after admitting he spent an hour playing tennis while an arson attack on the power grid left up to 100,000 people without electricity or heating in freezing weather; his party has fallen from 28.2 percent in 2023 to 17, behind the Left, the Greens and the AfD. Even the iconography is contested: Dennis Baum, the 82-year-old Jewish heir to the Simson moped works, flew in from New York to demand that the AfD stop putting his family's East German brand on Höcke's posters.

A state under that kind of pressure reaches for control, and this week it did. The Bundestag expanded the Federal Police Act, giving the 55,000-strong force real-time facial recognition, AI analysis of movement patterns, warrantless checks in weapons-free zones and its own drones; the Greens and the Left voted against and the AfD abstained. Interior Minister Alexander Dobrindt is drafting a further bill to let the BKA run facial and voice recognition against open internet data, with the SPD insisting Palantir stays out of it. Karlsruhe is hearing challenges to Bavaria's police act, which permits preventive detention for up to two months. The demand is not imaginary: attacks on rail staff now average eight a day, up from five last year, with 1,630 railway employees victims of crimes in the first five months of 2026; a court in Zweibrücken jailed the killer of a conductor for ten years; and a group calling itself the "Angry Birds Commando" set incendiary devices on the Cologne–Düsseldorf line for the second time, then posted on Indymedia to apologise that the fire had spread further than it meant and to say the next one would wait for better weather. Investigators now treat it as left-wing ecoterrorism. But the machinery is being built by a coalition polling at 22 percent while it tells its cities there is no money, and by a state whose own anti-torture commission has just documented prolonged solitary confinement in seven Länder and a cluster of 19 deaths in Werl prison.

Merz understands the leverage problem; he simply cannot find any leverage. Speaking in Cologne on 13 July, he called for a dialogue with Beijing to make the yuan float, on the grounds that Europe cannot compete against a competitor that manages its currency against it. On the same day, Emmanuel Macron gathered the coalition of the willing in Paris to launch an integrated anti-ballistic missile coalition — Germany, France, Britain, Italy, Spain, the Netherlands, Denmark, Norway, Sweden and Ukraine, promising shared research, open technology and money for Ukraine's Freya air-defence project, with Volodymyr Zelensky pressing the room to invest. That is the European answer to the dependence Wolff describes, and for now it is a communiqué — issued four days after the continent's largest economy went shopping in Washington.

The dates are already on the calendar. The American export licence is due in August; the police law and the municipal law both need the Bundesrat in the autumn; Saxony-Anhalt votes on 6 September and Berlin on 20 September. Between now and then Merz has to sell a €183 billion rearmament to towns he has just handed a billion and to a health system he has just cut, in an economy growing at 0.6 percent, with fuel above two euros and a shipping lane taxed by the ally he bought his missiles from. The Tomahawks land in 2029. The politics that has to survive until they do gets its first verdict in eight weeks.