GuShiio.com ① The CDU-CSU, which won the election, is forming a new German government, which plans to break with convention and spend heavily to boost the economy;
② The political coalition plans to increase defense and industrial budget spending, establish a 500 billion euro special fund, and reform debt rules to free up investment;
③ Deutsche Bank predicts that Germany’s economic growth rate may increase in 2026, and the new government’s measures may be Germany’s biggest paradigm shift after the war.
Cailian News, March 5 (Editor Ma Lan)The coalition of parties that is about to form Germany’s new government agreed on Tuesday to create a new € 500 billion fund to promote industrial and infrastructure modernization. This also broke the German government’s consistent practice of maintaining a low budget deficit.
The CDU-CSU, which won the lead in the general election, is negotiating to form a new alliance with the Social Democrats in the previous government, which will submit proposals to the German Parliament next week. Friedrich Merz, the leader of the CDU, who is likely to become prime minister of the new government, is ambitious and hopes to revitalize Germany’s economy and international influence.
The new government is expected to increase budget spending on defense and industry, while also comprehensively reforming Germany’s debt rules to free up investment and support the German economy. This means that Germany will undergo its largest financial reform since the 2008 financial crisis.
Robin Winkler, chief economist at Deutsche Bank Research, said this may be one of the most historic paradigm shifts in Germany’s post-war history. He also predicted that Germany’s economic growth forecast for 2026 may be revised upward from 1%.
The beginning of economic recovery?
Modifying Germany’s so-called debt braking mechanism and establishing a special fund require a two-thirds vote of the German parliament. Given the unprecedented victory of far-right and far-left political forces in last month’s German election, the CDU-CSU is eager to pass the proposal in the current parliament, which has not yet stepped down.
Sebastian Dullien of the IMK Institute said the results of exploratory talks on special infrastructure funds and debt-braking reforms will truly change the rules of the game. If the negotiations are successful, Germany’s economic stagnation will be resolved and the overall mood will shift significantly, as Germany once again has the ability to act quickly economically and militarily.
Merz emphasized that given the threats to freedom and peace on the European continent, Germany’s defense slogan had become at all costs. He will meet with incoming German Chancellor Scholz on Wednesday to discuss German aid to Ukraine.
This also reflects the difficult situation faced by the entire Europe in the Trump era. Mainstream political parties in Europe increasingly view Trump’s rapid shift in foreign policy and the rise of the far right as existential threats that will require them to take bold action to solve huge and thorny problems at home and abroad.
Carsten Brzeski, global head of macro at ING, points out that all in all, Europe is in the midst of historic change. Developments in the past few days have prompted the next German government to make a historic move to announce a fiscal package that could mark the beginning of an economic improvement.
