Germany is experiencing a crucial moment in managing its public finances. The government agreement between the CDU and SPD includes a significant change: military spending exceeding 1% of GDP will be excluded from the debt brake, and a special fund of 500 billion euros will be established for infrastructure. This plan could have an expansive effect on the economy, stimulating annual growth between 0.5% and 1% of GDP, according to estimates by the Unimpresa Research Center.
A Historic Agreement for Germany and Europe
The agreement between the conservative CDU and the social democratic SPD represents an important step not only for Germany but for the entire Eurozone. The decision to exclude military spending from the debt brake and create an infrastructure fund marks a clear shift in German fiscal policy. According to Giovanna Ferrara, president of Unimpresa, «Germany’s political stability is an essential pillar for Europe’s future, especially in a time of global uncertainties.»
The agreement comes after weeks of negotiations and demonstrates Germany’s ability to act with pragmatism and responsibility. «It’s an encouraging signal, especially when the European project seems to falter under the weight of geopolitical crises and rivalries between powers like the USA, Russia, and China», Ferrara added.
Germany’s Economic Situation: A Complex Phase
Despite the optimism generated by the agreement, Germany is facing a delicate economic phase. In 2024, German real GDP fell by 0.1%, following a 0.3% decline in 2023. This marks two consecutive years of contraction, a rare event for an economy that has been Europe’s engine for decades.
The fourth quarter of 2024 recorded negative growth of -0.2%, with exports sharply declining. Industrial production, which accounts for 29.1% of GDP, does not paint a better picture: in November 2024, it decreased by 2.8% year-on-year, with key sectors like automotive and metallurgy struggling for over a year.
Investments and Reforms: The Recipe for Revival
The infrastructure investment plan and CDU leader Friedrich Merz’s promise to focus on research and development – with the ambitious goal of building the first nuclear fusion reactor – could give new momentum to a struggling production system.
The reform of the debt brake and support for Ukraine confirm that Germany does not intend to retreat on the international stage. «A strong Europe needs a solid Germany, capable of driving businesses and markets», Ferrara observed.
Future Prospects
If defense spending reaches 3.5% of GDP and the infrastructure fund is fully utilized, German public debt could reach around 80% of GDP within the next ten years. However, the benefits of this expansive policy could extend to other Eurozone states, contributing to a broader economic recovery.
«Political stability is the first step, now courageous choices are needed to turn numbers into opportunities. Time, as always, will tell if they will be up to the task», Ferrara concluded.
