Germany’s Trillion: How A Record Investment Plan Could Reshape The Nation

-Analysis-

BERLIN — As with any political deal, there is plenty to criticize about the parliamentary compromise on the defense and infrastructure funding package that has just passed in the German Bundestag. But the fact remains: more than 1 trillion euros will be available in the coming years to strengthen the country’s defense and modernize infrastructure.

Friedrich Merz, the likely next chancellor, has thus laid the financial groundwork for repositioning Germany on the global stage. The investment bank Goldman Sachs, hardly known for sentimental optimism, expects this to soon bring an end to the period of economic stagnation. According to its forecasts, the German economy will grow by 1.5% next year and 2% the year after.

For an aging country, these are respectable figures. And more growth means more jobs, higher tax revenues, additional funds for social security systems, and yes, also higher interest rates.

Of course, when such vast sums are in play, there is no shortage of potential pitfalls. The preliminary spending plans — including allocations for commuter tax breaks, agricultural diesel subsidies and restaurant industry incentives — illustrate the risk.

Potential pitfalls

If these billions are squandered on political handouts, then by the time the next legislative term ends, Germany’s economy may be no better off than it is today, just deeper in debt. In this respect, perhaps the greatest economic policy experiment in post-war history has only just begun.

Those involved understand the seriousness of the situation and have sought a solution.

For it to succeed, both investment and reform are essential. The key challenges are well known: cutting bureaucracy, accelerating planning procedures, and modernizing the state. Even with the influx of billions, one reality remains unchanged: Germany’s new coalition government will have to make decisions that the public may find unpopular.

It is no coincidence that discussions about scrapping public holidays or extending working hours are resurfacing. Money alone does not build bridges. People do. Modernizing the country will require effort from all sides. The coalition negotiations will soon reveal whether the center-right CDU/CSU alliance and the Social Democrats (SDP) have grasped this reality.

The true test

After decades of treating investment and debt with caution, German politics has now been set loose. This is both a risk and an opportunity. It may turn out that it is not as catastrophic as some fear.

This has not been a strategic triumph for Germany’s established parties

It is often overlooked that the previous traffic light coalition — of the SPD, the neoliberal Free Democratic Party (FDP) and Alliance 90/The Greens — made some headway in areas such as cutting red tape. But it didn’t achieve much because there wasn’t enough money. Merz has now addressed that issue, for the time being. Control is always good, but sometimes trust is even better.

The past few days have not been a strategic triumph for Germany’s established parties. But at the very least, we should acknowledge the possibility that those involved understand the seriousness of the situation and have sought a solution within their respective political circles. That solution has now been found. The true test will come in four years, when voters deliver their verdict in the next federal election. That is how democracy works.