Germany's chancellor-in-waiting and leader of the Christian Democratic Union party (CDU) Friedrich Merz looks on as he gives a statement in Berlin, Germany March 8, 2025. [Photo/Agencies]
BERLIN — Germany's likely next government under conservative leader Friedrich Merz has said it plans a shot in the arm for the flagging economy with a huge program of investment in defense and infrastructure.
But economists warn that Europe's largest economy will also need structural reforms for a sustainable recovery after two straight years of recession.
Both Merz's center-right CDU/CSU and the center-left SPD, who are in talks on forming a coalition, say they want to restore industrial competitiveness.
On Thursday, the country's outgoing lower house of parliament began a special session to debate the huge package for infrastructure and sweeping changes to borrowing rules to bolster defense.
Their draft program includes lowering taxes on electricity and halving charges for the use of the power grid.
The BDI, Germany's influential industrial lobby, has welcomed the plans and said they would provide much-needed relief for energy-hungry sectors such as steel and chemicals, as well as the small- and medium-sized businesses that form the backbone of the German economy.
All have suffered from the huge increase in costs for heat and electricity in the wake of the conflict in Ukraine.
The flagship proposals put forward by the two parties include a big increase in defense spending and a 500-billion-euro ($545-billion) package to upgrade the country's creaking infrastructure.
The huge investments over several years could unleash a boom in both the defense and construction sectors.
The latter could experience "a bonanza", according to analysts at Stifel, an investment bank, with production levels returning within three years to where they were before the conflict in Ukraine.
To help the battered automobile industry, the parties want to reintroduce subsidies for the purchases of electric vehicles after similar incentives were abolished two years ago.
The Green party has complained that the government-in-waiting has not included enough action on the climate emergency in its biggest spending plans.
Speaking ahead of the debate, senior Greens official Katharina Droege played down the chances of an agreement, saying her party would vote against Merz's proposals.
Their dissatisfaction has potential consequences: the Greens' votes will be needed to get the two-thirds majority necessary to approve the plans in the outgoing parliament and so far they have said they will block them.
As of now, experts are not even sure Germany will be able to escape a third straight year of recession.
Bundesbank President Joachim Nagel has also warned that extra borrowing alone "will not suffice to alleviate Germany's weak growth".
Agencies via Xinhua
