Black-red financial package: A new beginning for Germany's future or a risk?

The federal government has approved a financial package worth 500 billion euros that supports the areas of infrastructure and climate protection. In addition, unlimited amounts are earmarked for defense, which are to be financed through debt. This decision was made by the Union and the SPD in the Bundestag, supported by the Greens. A key goal is to take on this debt before the government is officially in office tagesschau.de reported.

Economist Clemens Fuest from the Ifo Institute highlights that approving the debt is the easy part, while implementation will pose major challenges. However, the investment programs could act as a catalyst for the German economy, which has shrunk over the past two years. The German Institute for Economic Research (DIW) predicts that the economy could grow by 1.1 percent in 2026 without additional spending; With the planned expenditure, even 2.1 percent would be possible.

Challenges and Warnings

However, taking on debt also has its pitfalls, as it leads to higher interest rates on government bonds. The average return is currently around 3.04 to 3.08 percent. Germany's debt level is around 63 percent of gross domestic product (GDP) and could rise to 90 percent in the next ten years. Experts warn that the high debt burden could endanger the ability of future generations to act. In order to maximize the impact of investments, an increase in production capacity and the recruitment of more qualified personnel are required.

In addition, politicians are calling for structural problems to be addressed, approval and planning processes to be accelerated and bureaucracy to be reduced. If reforms are lacking, there is a risk that some of the additional spending will be absorbed into inflation. In the long term, the state will also have to cut and reallocate expenditure in order to finance the additional expenditure from the regular budget.

The introduction of the debt brake in 2009 was decided in response to the economic crisis. Article 109 (3) of the Basic Law stipulates that the federal and state budgets are balanced without income from loans. The federal government has an cyclically adjusted deficit of a maximum of 0.35 percent of GDP. This regulation was intended to ensure sustainable handling of state finances and is viewed as a financial success. However, there is also criticism that the debt brake limits the scope for counter-cyclical financial policy wirtschaftsdienst.eu explained.