New Government to Invest Half Trillion in Germany
The prospective conservative-Social Democratic governing coalition plans to put hundreds of millions of euros into stimulating the economy and improving Germany’s infrastructure. This after German legislators approved constitutional changes that will allow the government a massive sum of additional credit leeway for infrastructure and other investments in the coming years.
Apr 09, 2025
The conservative CDU-CSU and the Social Democratic Party (SPD) have reached an agreement to form the next German government. Conservative chancellor-in-spe Friedrich Merz placed the focus clearly on a landmark program of economic and business stimulus.
“The future government will be investing and reforming to ensure Germany remains stable and to make the country more secure and economically stronger,” Merz said. “Europe, too, can rely on Germany.”
His government would use tax incentives and innovations to render Germany more competitive in terms of prices, Merz pledged. Merz also pledged reductions in taxes, energy prices and government bureaucracy as well as increased digitalization and modernization of the state. And he promised a dramatic rise in defense investments.
The agreement now has to be approved by the party rank and file of both coalition partners. Thereafter, the Bundestag can elect Merz chancellor in early May.
Previously, the two chambers of the German parliament, the Bundestag and the Bundesrat, approved new constitutional changes to give the government new flexibility in funding major projects. The state will now be permitted to raise a half trillion euros in off-budget funds in the next twelve years to overhaul infrastructure. EUR 100 billion of that money can be spent on climate-protection measures.
Defense spending has been exempted from limits on structural budget deficits to 0.35 percent of German GDP – the so-called debt brake. It also lifts a prohibition on the Federal Republic of Germany’s sixteen constituent regional states taking on new credit debt. In future the regional states will also be allowed to obtain loans up to 0.35 percent of national GDP. The World Bank estimated German GDP to be worth over USD 4.5 trillion in 2023, making it the third largest in the world.
The constitutional changes were made as Germany waits for a new government after national elections in February. The conservative CDU-CSU and the Social Democratic Party are currently negotiating over the formation of such a government.
“The package to increase Germany’s borrowing capacity is good news for the German economy,” said Robert Hermann, CEO of Germany Trade & Invest, the country’s international business promotion agency. “The greater leeway concerning state credit will create business opportunities and will allow Germany to finance much-needed infrastructure and climate protection projects. This and the rest of the legislative action are indelible proof that the German state continues to function as Germans wait for a new government to take office.”
