On Monday 12 May, Germany’s new Finance Minister, Lars Klingbeil, presented the ‘Merz’ government’s economic programme to his Eurogroup counterparts, with a strong commitment to investment. A message well received in Brussels.
Our “growth agenda” and “massive” investments will be “positive for Europe”, said Mr Klingbeil, keen to take his country’s cooperation with Europe to the next level.
Among the measures that Germany intends to take, he cited: - the reform of the German Constitution, which is supposed to free up €1,000 billion in leeway for financing infrastructure and increasing budget spending; - structural reforms; - lower energy prices; - cutting red tape; - attracting a new workforce.
When asked about the possibility of Germany breaching the Stability and Growth Pact by allowing its public deficit to soar above 3% of national GDP, the German Minister said that this question was premature, as the ‘Merz’ government would have to decide on its medium-term budgetary strategy “in the coming weeks”.
Citing “very positive signals” from the European Commission and counterparts he had already consulted, such as the French Minister, Éric Lombard, in Paris on Friday, Mr Klingbeil noted that “everyone thinks that Germany is right to commit itself to more investment”, particularly in the field of security. He added that the EU’s reformed fiscal rules now allow for “greater flexibility”.
Germany is one of sixteen Member States to have decided to activate the Pact’s national opt-out clause (see EUROPE 13632/8), which will allow it to increase its annual military spending by a maximum of 1.5% of GDP for four years. According to Eurostat, the German public deficit will amount to -2.5% of national GDP in 2024.
At euro area level, the fiscal stimulus that Berlin is introducing should have an impact on the overall fiscal stance of the currency area, whereas the Eurogroup had recommended a slightly restrictive stance for 2025.
On his arrival in Brussels, the President of the Eurogroup, Paschal Donohoe, pointed out that Europe’s big spenders have long been talking about the importance of increasing spending on security. “We’ll be having a discussion on what [Germany’s decisions] means for the budget framework of the euro area”, but these decisions are “welcome”, he said, convinced that Germany’s fiscal policy will remain “consistent” with the Pact.
The Dutch Minister, Eelco Heinen, used the same reassuring tone. Germany is known as a “fiscally prudent country”, he said.
Mr Lombard, who was due to have dinner with Mr Klingbeil on Monday evening, said he was looking forward to working with his German counterpart to “put in place an agenda of sovereignty and competitiveness”. The French Finance Ministry was delighted on Monday morning at the prospect of a more “expansionary” German fiscal policy, which will help to rebalance economic governance within the euro area around the ‘consumption’ and ‘investment’ pillars. (Original version in French by Mathieu Bion)