Germany's upper house of parliament has passed a significant reform of the country’s borrowing rules, alongside a 500-billion-euro fund aimed at revitalizing infrastructure and boosting Europe’s largest economy. The constitutional amendment eases restrictions on government borrowing, allowing for extensive defense and security spending.
The reform, approved with a two-thirds majority following the Bundestag’s earlier vote, was fast-tracked by Chancellor-in-waiting Friedrich Merz to avoid potential obstruction by fringe parties in the next legislative term.
While financial markets reacted positively, with Germany’s DAX 30 reaching record highs and defense and construction sectors benefiting, experts caution that the economic impact will not be immediate. Bureaucratic hurdles and labor shortages could delay implementation, with substantial effects expected only by 2026 or 2027.
Germany's Mittelstand—small and medium-sized enterprises—express concerns over administrative bottlenecks and inefficiencies in fund allocation. Business leaders stress that mere financial injections are insufficient without structural reforms to simplify regulations and expand labor capacity.
Despite the economic stimulus, Germany's economy is expected to stagnate in 2024 due to weak consumer spending. The DIW economic institute estimates that the infrastructure fund could raise GDP growth by over two percentage points annually over the next decade, with projected growth reaching 2.1% in 2026 instead of 1.1%.
However, the manufacturing and industrial sectors remain cautious. Companies like Siemens and ThyssenKrupp continue with job cuts, and experts warn of potential overheating if production capacity does not expand to meet demand. With a projected shortfall of 340,000 STEM professionals by 2035, urgent policy action is needed to address labor shortages and regulatory constraints.
The reform represents a pivotal shift in Germany’s fiscal policy, but whether it will translate into sustained economic growth depends on the government’s ability to implement meaningful structural changes.