Germany: “Whatever it takes”?

We are almost a week away from a vote that could change the face of Germany. On 18 March, the Bundestag will decide on the adoption of two structural defence and infrastructure projects. A massive budget plan that could exceed EUR 1,000 billion1 over the next ten years and revive German growth, which has been absent for almost 3 years.

1. What is this plan? Der Plan. Germany is on course to become the European country with the largest budgetary impetus in the years ahead. Announced on 4 March, the agreement between the CDU/CSU and the SPD provides for defence spending in excess of 1 point of GDP to be exempt from the debt brake. A fund dedicated to infrastructure, outside the budget, of EUR 500 billion over 10 years (EUR 50 billion per year, including EUR 10 billion for the Länder) should also be set up. With this in mind, the authorised structural deficit of the Länder should be increased from 0 to 0.35 points of GDP. This fiscal shift was authorised by the result of the parliamentary elections on 23 February and accelerated by the spectre of a US withdrawal from European defence.

2. Towards rapid implementation? The outgoing parliament will debate these plans on 13 and 18 March (the day of the formal vote), before the new parliament takes office on 25 March. Adoption will require a two-thirds majority in both the Bundestag and the Bundesrat, implying the support of the Greens or the FDP - the latter only being in favour of the defence part. The text sets no limit on the defence budget, giving the next government considerable room for manoeuvre. Implementation should be rapid, with a government expected by Easter. The agreement reached on 8 March between the CDU/CSU and the SPD on the broad outlines of their coalition programme is in line with this approaching deadline.

3. Growth: an end to lethargy? According to our calculations, Der Plan could generate almost EUR 120 billion in additional annual expenditure, including EUR 50 billion for infrastructure and EUR 70 billion for defence, potentially as early as 2026, if its budget was increased from 2 to 3.5% of GDP (including EUR 30 and 40 billion respectively as early as 2025, according to our assumptions). This spending would directly stimulate public consumption and investment and indirectly stimulate the economy as a whole. Assuming a multiplier effect of 1.32, German growth could therefore reach +0.9% in 2025 and 2026 (our current forecasts are +0.2% for 2025 and +0.5% for 2026), after -0.2% in 2024. In the medium term, potential GDP is expected to be 2% higher in 2029 than in the absence of Der Plan, and 1.6% higher in 2027 (thereby offsetting the negative impact of potential additional US tariffs, estimated by the Bundesbank at 1.5 points of GDP in 20273).

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