Germany has a unique constitution. It was born from the ashes of the Second World War and is one of the only countries legally limiting government borrowing as a percentage of its Gross Domestic Product (the value of all the goods and services produced in a country in a year). Governments around the world spend a considerable amount of money every year on everything from health services to infrastructure, and most of this is funded through taxes such as income tax and corporate taxes on firms. This supports citizens and keeps the economy strong, as government spending is a key part of the GDP formula, roughly 50% of the total GDP. However, if the government spends more than it receives in revenues, it must borrow money to fill the gap and then pay interest on that debt. In Germany, it is constitutionally not allowed to borrow more than 0.35% of its GDP, which is 5 trillion U.S. dollars, a year. This has significantly hindered the development of Germany’s economy. However, after the recent election of Friedrich Merz, an amendment was passed to the constitution, which created a fund of 500 billion euros that would be separate from the debt brake. This money will be used on defence and infrastructure and will undoubtedly rocket the German economy out of its two-year recession.  

Germany has neglected infrastructure spending massively due to its debt brake. In the short term following the 2008 financial crisis, which is when the debt brake was introduced, spending less or not increasing spending seemed like a good way of reducing deficits and maintaining economic stability. However, in the long term, as many European countries have found out (including Britain) this has led to a crumbling infrastructure system. This is good for no one as train delays and cancellations increase (up to a third of trains in 2024 were delayed) while roads remain filled with potholes and bridges risk collapse. Former transport minister Volker Wissing claims that “4000 bridges require urgent renovation” with a major bridge collapsing in Dresden last year. At the same time, Deutsche Bahn, Germany’s national railway company, says 45 billion Euros are needed for renovation. Individuals become less productive as more time is spent taking inadequate public transport or avoiding bridges, or a lack thereof. Business costs rise as alternatives have to be made, or productivity takes a hit. The recent change to the debt brake will relieve this pressure and improve services. It will also act as an ‘economic multiplier’ where investment and spending drive investment and spending, creating a greater total increase to GDP than what was initially spent. Still, it will take time for this multiplier to come into effect.  

Critics of the revised debt brake argue various things. Some critics believe the problems in Germany’s infrastructure run deeper, and the revision of the debt brake does not go far enough to fully root out the problems in Germany’s infrastructure or Military. This is a valid concern, especially as all prior problems must be fixed and the added goals of climate-friendly infrastructure require further investment, which experts believe will cost between 40 and 50 billion Euros. Furthermore, the Bundeswehr(the German Military) requires an immediate investment of 100 billion Euros and an extra 30 billion Euros yearly to meet the NATO 2% GDP spending goal and operational targets. The numbers won’t add up, which may hinder business investment as decisions have to be made over what won’t get the investment it desperately needs.  

Other critics, such as Jörg Krämer, Chief economist at Commerzbank, say the real problem lies with red tape, which “can extend project approvals to 5-10 years”. Construction companies agree and believe that plans should focus more on easing approvals and regulations to boost investment and construction. This is also a problem shared by Britain, epitomised in our housing crisis and challenges in constructing HS2. Red tape can be tackled in two main ways: hiring more people to handle requests or simply removing, reducing, or simplifying it. Typically, governments will use a mixture of both to reach their desired goals, but hiring people is costly and may have a time lag, as planning officers have to be trained, while cutting regulation has to be compatible with EU law and pass through the German parliament. 

Frederich Merz does not have an easy path ahead fixing the German economy, but the relaxation of the debt brake is a huge step in the right direction, even if critics believe it may not go far enough. Structural approaches reforming regulations are an essential remedy to rocket the German economy truly. Germany must fully utilise this to bring Europe’s economic superpower back to the centre stage after years in the wings. However, funding alone is insufficient- Germany must pair investment with deep structural reforms. Will this bold approach break the inertia, or merely delay the inevitable?