Merz’s Half-A-Trillion Bet: Reinvent The German Economy Or Become The World Champion Of Waste

-Analysis-

BERLIN — Newly-elected German Chancellor Friedrich Merz now has to recover quickly from the shock of his rocky start. Among the many massive challenges he faces, there is one he set in motion himself, and it cannot wait: the special fund.

After the federal election in February, Merz worked hard to push through a deal worth half a trillion euros for infrastructure. He even got the Greens to agree to 100 billion euros for climate protection. Now the so-called special fund is coming under fire from all directions. Everyone insists their own field counts as infrastructure.

Lars Klingbeil of the Social Democratic Party (SPD) wants to use the money to bring back disgruntled scientists and researchers from the United States. Markus Söder, a Bavarian politician from the conservative Christian Social Union (CSU), wants to boost Germany’s aerospace industry, which, naturally, is based in Bavaria. The German Bicycle Club wants more bike paths, of course. A major hospital is demanding funds to build bomb-proof underground facilities. In Mecklenburg-Western Pomerania, they want money for ports, and Brandenburg wants to include railway lines to Poland.

Oh boy.

Very soon, there will need to be a clear decision about what exactly is going to be done with the half a trillion euros. This is Germany’s best shot in a long time to move forward, in a country that has been stuck in place for too long.

The danger for the new chancellor is obvious: He will be swamped by a flood of demands. And then the money could vanish in a flash. Just look at Deutsche Bahn national railway company, which is asking for almost 150 billion euros. Or the struggling municipalities, already complaining that the 100 billion earmarked for them through the states is nowhere near enough.

A moonshot

When faced with a deluge like this, only the two Ps of leadership can help: priorities and principles. What is needed is a goal, a clear direction for the country. In Silicon Valley, they would call it a moonshot, a single transformative objective Germany wants to achieve with this money.

Does the country want to become a global model of sustainable transport? A modern industrial powerhouse with well-paying jobs and affordable energy? A digital frontrunner? These are just some of the options. Anyone saying “all of the above” hasn’t understood the challenge.

The key is to start with the essentials. But that is exactly what has not happened so far. Before any of the additional funds are spent over the next 12 years, the country must be ready to use them effectively, and it is not. Even now, public investment funds often go unused year after year because the requirements are too complex, the approval process is too slow, or municipalities simply lack the staff to manage and carry out these projects.

Put another way: the pipes in the public system are clogged, and before they get flooded with money, they need to be cleared. The government showed it could do this in record time during the energy crisis, when it built liquefied natural gas terminals starting in 2022.

Germany didn’t actually need all of them, but the political will behind that effort is what is needed again now. Only this time, that energy must be summoned before the billions start flowing next year.

It’s time to innovate

The money should not just go into concrete and asphalt. It should also spark as many innovations as possible. That means the rule must be: “high-tech first.” That would give startups, tech solutions and patents a real chance to emerge, creating an economic momentum that lasts beyond the construction boom. Often, the same objective can be reached by different means, each with its own impact on the country.

Take the rail system, for instance. One option is to slowly add a second track to ease congestion and allow for more trains. But another option is to digitize the existing network, so trains communicate automatically and run closer together. With that kind of technology, a single road could accommodate far more self-driving cars than it can today with regular vehicles.

Of course, this cannot all be about grand ideas.

Or take the power grid. Germany could adapt it for renewable energy by subsidizing dozens of new gas-fired power plants and burying countless kilometers of expensive new power lines. Or it could invest in storage solutions, large and small, that hold electricity for times when wind and solar are in short supply. It could build interactive grids where households feed electricity from car batteries or rooftop solar back into the system whenever it is needed. China, for instance, is showing how much can be done in this area with innovation in storage technology.

Which brings us to Söder and his spacecraft. The Bavarian premier may be a champion of local interests, but when it comes to space exploration, he may actually be onto something. Projects like that can inspire fresh ideas, new technologies, and maybe even global market leaders. The same goes for nuclear fusion, an area where Bavaria leads nationally.

Detailed accounting is crucial

Of course, this cannot all be about grand ideas. The new chancellor and the country must be able to track whether the special fund is being spent wisely. That calls for detailed accounting: What the money was spent on, and what was gained in return. In terms of tangible assets, improvements for the population and the economy, environmental progress or setbacks.

The whole enterprise will cost a lot. Just the infrastructure part of the special fund is likely to push the national debt ratio up by more than 10 percentage points.

That could raise the interest rates Germany pays its creditors and send a signal to EU partners with even more debt: Financial discipline is no longer a priority. That would not be a good look. They will want to know exactly what they are getting in return. This makes the responsibility of the state and of chief investor Merz, all the more enormous. Not a single one of these billions can go to waste.

And yet, imagination and courage are just as essential as discipline if Germany is to create something genuinely new.