"Last March, following angst-ridden months as Europe came to terms with Donald Trump's return to the White House, financial markets in Paris, Milan and Berlin were gripped by a surge of optimism. The cause was a historic deal brokered by Friedrich Merz, then Germany's chancellor-elect, which loosened constitutional spending constraints in the EU's powerhouse nation. Here at last, it was hoped, was the fiscal kickstart required to end a prolonged period of economic stagnation, and mitigate geopolitical headwinds blowing from the US and China."
"The chancellor's plan included whatever it takes levels of defence spending, designed to prepare Germany for a changed era in which the US was no longer a dependable ally, and a huge 500bn investment in infrastructure and the green transition. But last week, the chancellor's team of economic advisers downgraded growth forecasts for 2026 to below 1%. And ahead of what would constitute a fourth year of near-flatlining, business confidence has slumped."
"Lifting Germany's debt brake was never going to be an instant panacea for longstanding problems. Patience will be required, for example, before the full impact of spending on the country's ailing transport systems is felt. But across Europe, patience is a virtue that's in short supply among voters, who feel that their living standards have been stagnating or worse since the crash of 2008."
Last March markets in Paris, Milan and Berlin surged after Friedrich Merz secured a deal to loosen Germany's constitutional spending limits. The package promised large defence spending and a 500bn investment in infrastructure and the green transition to revive growth and reduce geopolitical vulnerabilities. Six months into Merz's premiership advisers downgraded 2026 growth forecasts to below 1% and business confidence declined. Relaxing the debt brake will take time to improve transport and other sectors. Voter frustration over stagnating living standards since 2008 is boosting support for the far-right and undermining mainstream parties.
Read at www.theguardian.com
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