German Chancellor Friedrich Merz likes to show a very expressive graph to demonstrate that Germany needs an economic turnaround. The graph shows three curves and their evolution over the last decades. Of the three curves only one rises, that of public spending. Lower the private investment curve. And gross domestic product growth is stagnant. The Christian Democrat Merz, reports the newspaper Imagehe told the deputies of his parliamentary group that the coalition with the Social Democrats had to bring the three curves closer together. That is, increasing private investments, reducing the part of public spending not dedicated to investments and relaunching growth. If you don’t succeed, there will only be one possible conclusion: “We failed”.
This is the atmosphere that reigns in the circles of German political and economic power, six months after Merz’s arrival at the chancellery. Despite the promise that as early as the summer we would begin to notice the improvement in the economic context after years of stagnation, little has changed. GDP does not grow, or only grows by a few tenths (0% in the third quarter, -0.2% in the second, 0.3% in the first). The sector, caught between US President Donald Trump’s tariffs and competitive pressure from China, continues to announce falling profits and job cuts. And the debt plan that was supposed to get the country out of the quagmire with investments in infrastructure and weapons of up to a trillion euros has not yet taken effect. Even the “autumn of reforms”, announced with great fanfare by Merz after the summer break, did not materialize amid internal struggles within the coalition.
“Germany runs the risk of being left behind,” warned Economy Minister Katherina Reiche, who embodies the liberal wing of a government in which the Finance Ministry is in the hands of Social Democrat President Lars Klingbeil. “We need to focus on securing jobs, reviving growth and making life safe in this country,” Klingbeil said a few weeks ago. “I have been to several factories in North Rhine-Westphalia (the historic heart of German industry), and the workers there fear for their jobs.” Reiche claims that, since 2019, GDP has grown by only 0.3%, while in the USA the increase was 12% and in Italy 5%. With France immersed in political instability and financial disorder, the EU awaited the return of the major economic power.
But anxiety is beginning to spread in Germany, the fear that the greatest period of stagnation since the Second World War will continue. There are, in summary, two schools regarding this first examination of Merz. One, more pessimistic, is that of economists such as Lars Feld, thinking head of the so-called German ordoliberalism and former advisor to Christian Lindner, Finance Minister in the previous government. “It’s not that the environment is bad, it’s that the situation is bad,” Feld says by phone. “People don’t see a clear perspective and so far the government has moved little.” Feld, against the new debt policy, is skeptical about the investment plan. But even one of the architects of this plan, the director of the Ifo institute, Clemens Fuest, sees a risk of the “Italianization” of Germany, he told the German press. That is, years or decades of swamp and depression. Fuest is the author of the famous Merz graph.
Robin Winkler, chief economist for Germany at Deutsche Bank, draws, in a conversation with EL PAÍS, a very different panorama, cautious but far from any catastrophism. “The next few months will be better,” he says, “because fiscal spending will finally start to take effect.” “Unless we see something like that shock“, he analyzes, “it is very likely that the economy will regain momentum.” For 2025, the economist expects “very mild growth, perhaps 0.2%”. For 2026, 1.5%, above consensus forecasts in Germany. “In the medium term”, he adds, “to really sustainably increase growth rates, supply-side reforms are needed. But in the next two years growth could be high, at least by German standards, thanks to stimulus Keynesian.The investment plan – applauded outside Germany as the end of the debt taboo, and criticized in this country where balanced accounts are dogma for many – will prove decisive.
Winkler notes that growth in the first months of the new coalition “has been disappointing.” There was hope, he explains, that the mere prospect of fiscal stimulus would encourage private investment and consumption. It didn’t happen. The coalition wasted part of the summer in internal discussions that took attention away from the economy. The announced reforms have not arrived. Trump’s tariffs, and especially uncertainty about their size, have contributed to nervousness in the industry. Also the debate on the possibility that part of the money ends up financing other items instead of investments in infrastructure or defense.
“The main problem, beyond current issues, is industrial weakness,” underlines Feld, director of the Walter Eucken Institute. “The sector has been contracting since the end of 2017. Overall we have lost about 250,000 industrial jobs, perhaps more.” The crisis will continue, predicts the liberal economist. “There are many reasons – he claims – but they can be summed up by saying that the costs for investors, especially in the industrial sector, are too high”. The IW, a leading economic institute, believes that “more than 600,000” steel jobs are under threat. In the automobile, the big ones: Volkswagen. Mercedes-Benz and BMW have seen their profits fall 46% this year, compared to 2025, the newspaper reported Handelsblatt. The sector, late in the electric car race, is lobbying Merz in the EU to ease a ban on the sale of fossil fuel cars in 2035.
The industry suffers from tariffs, loss of competitiveness or energy prices. Germany has not recovered from the loss of the three pillars that supported prosperity during the years of Chancellor Angela Merkel, between 2005 and 2021: cheap Russian energy, exports to China and the certainty that the United States would guarantee the country’s military protection. Supporters of the reforms appeal to the former social democrat Gerhard Schröder and his cuts to the welfare state. Up to now it has involved surgical interventions, such as the tightening of the conditions for receiving citizenship income. The real change, the one that can transform Germany, is the elimination of the debt brake and the massive investments, decided at the end of the last legislature. And no one has noticed this yet.
