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The new governing coalition in Germany, comprising the CDU/CSU and SPD, has announced a significant shift in fiscal policy, moving towards increased borrowing to finance extensive investments in infrastructure, defense, education, research, and construction. This change marks a departure from the traditional fiscal conservatism symbolized by the "debt brake."
Matthias Miersch, an SPD politician and member of the Bundestag, has emphasised the importance of these investments, believing they will benefit everyone in the country. Miersch sees the investment program as a crucial step towards shaping the country's future and promoting national cohesion.
One of the key features of this new approach is the suspension of the debt brake, allowing for a borrowing spree of up to €500 billion, specifically earmarked for infrastructure investment. A special fund with approximately €60 billion of off-book borrowing further complements this. The total federal budget for 2025 stands at approximately €503 billion, with around €143 billion financed through loans.
The focus of these investments is threefold: modernising Germany’s aging infrastructure, boosting defence capabilities in line with NATO commitments, and supporting the education, research, and construction sectors to stimulate economic growth and transition. Defence spending is one of the areas to receive significant investments, with the aim of reaching 5% of GDP total defence investment including infrastructure.
While the plans are ambitious, there is skepticism about their full delivery. The absorptive capacity in construction and defence sectors might be a constraint, and some expenditure may serve more as political signalling than immediate tangible output.
This new budget clearly exceeds previous Maastricht criteria and EU fiscal rules, fully abandoning the debt brake mechanism. This political choice prioritising investment and defence readiness, despite potential inflationary pressures, has been met with criticism by some who view it as an erosion of purchasing power accepted by policymakers.
In conclusion, the new German government's decision to adopt an expansionary fiscal policy represents a significant move towards national development and unity. The government's plans, which involve suspension of fiscal rules like the debt brake and large-scale borrowing, are aimed at funding critical investments in infrastructure, defence, education, and research, reflecting both internal economic priorities and external geopolitical commitments.
- The shift in fiscal policy by the German government, led by the CDU/CSU and SPD, is focusing on employment policy as a significant portion of the €500 billion borrowing is earmarked for infrastructure investment, which is expected to stimulate economic growth and create jobs in sectors like construction and defense.
- Amidst the criticism of potential inflationary pressures and the erosion of purchasing power, this expansionary fiscal policy also includes investments in education and research, areas that are crucial for future employment opportunities and innovation in EC countries.
- The suspension of the debt brake and the adoption of an investment-driven fiscal policy, as observed in the new German budget, are indicative of a broader trend in employment policy across various regions, where governments prioritize investment in infrastructure and key sectors to promote employment and economic growth.
