MEGA Not MAGA

‘This could easily be a sustained fiscal stimulus unparalleled in Germany’s history.’ (Jim Reid)

Only three months ago, widespread discontent over the perilous state of Europe’s largest economy led to the collapse of Germany’s coalition government, paving the way for snap elections in February 2025 and striking another body blow for a country already struggling to attract global capital.

Last night, the new German coalition unveiled plans for what has been called the biggest and fastest fiscal policy shift in post German unification history.

Shown in the chart below from Jim Reid and the team at Deutsche Bank is Germany’s fiscal deficit through time. Their working assumptions, subject to change, bake in an extra 3% deficit phased in over the next decade from current levels.

Nonetheless, some great historical perspective, and a roadmap for the potential path ahead.

Note that Germany will still likely have the lowest debt/GDP in the G7 for the foreseeable future. Merz & Co. could spend the equivalent of around $1.6tn before its debt-to-GDP equalled the second lowest (the US) country in the G7.

Taking it to the extreme, Germany could spend $8.5tn before its debt-to-GDP equalled Japan’s!

(Cover Image Maheshkumar Painam)