Germany still can’t get it together. Despite massive investment promises and big fiscal changes that got European policymakers buzzing, nothing’s taken off.
The country’s economy is still stalling, and hopes that Germany could pull the euro zone out of its slump are quickly fading.
According to CNBC, the grand plans announced earlier this year are now under scrutiny, with economists asking what went wrong… and if anything will change soon.
The buzz started when Berlin moved to relax its strict debt brake. That rule had capped how much debt the federal government could take on each year. Under the new setup, Germany allowed itself more wiggle room, especially for defense and security spending.
On top of that, the government launched a €500 billion ($592 billion) fund aimed at infrastructure and climate projects. It sounded massive. But the results on the ground are still missing.
Government promises not translating into actual growth
Germany’s gross domestic product rose by just 0.3% in the first quarter of 2025. Then it shrank by 0.3% in the second. That’s after full-year contractions in both 2023 and 2024.
The euro zone didn’t fare much better—GDP across the bloc went from 0.6% growth in Q1 to 0.1% in Q2. It’s sluggish across the board. But Germany was supposed to lead the recovery. That’s not happening.
European Central Bank Governing Council member Martins Kazaks told CNBC earlier this month that “the big hope lies on Germany” when it comes to fiscal spending boosting the region’s growth next year. The optimism isn’t backed by results. Germany hasn’t delivered.
Holger Schmieding, chief economist at Berenberg, said a “major rise” in defense orders and infrastructure activity had technically begun. But in his words, “we are not seeing it strongly in actual output data yet.”
Holger added that everything was going about as expected after the debt brake rule change, but warned that public spending is rolling out slower than many expected. “In Germany, it takes time to spend money,” he said.
While some of the investment is tied up in long-term projects, other spending choices are now drawing more questions. Franziska Palmas, senior Europe economist at Capital Economics, flagged that Berlin isn’t just boosting defense and infrastructure, it’s also spending in other areas.
“The government is not just raising defence and infrastructure spending,” Franziska said, “it is also using some of the additional fiscal space to finance other spending.”
Extra deficit, small results, and regional drag
Franziska pointed out that part of this includes electricity tax cuts for businesses. That could help a little. But most of the rest—like pension top-ups, healthcare, and social benefits—is going toward covering rising costs.
“The additional spending on healthcare and pensions won’t boost the economy,” she said, “given it reflects mainly rising costs due to demographics.”
There’s no real sign that all this spending will lead to a meaningful recovery anytime soon. German economic institutes have already downgraded growth expectations to just above 1% for 2026. The ECB expects the euro zone as a whole to grow by 1% that year.
Holger doesn’t see much impact beyond that. He calculated that Germany’s stimulus might boost its own GDP by 0.3 percentage points. That could translate into a 0.1% boost for the wider euro zone. Franziska’s forecast was even lower: she expects Germany to contribute only 0.2% to euro zone growth in 2026.
Meanwhile, other players in the bloc are pulling in different directions. Franziska said that Spain’s economy is growing faster, helped by immigration and more jobs.
ECB rate cuts could also help nudge some growth across Europe. But other forces are holding things back. Franziska warned that recent U.S. tariffs could drag euro zone GDP down by 0.2%, and France’s own budget cuts could hurt growth, too.
Holger said Germany’s eventual recovery could still lift others a little. He expects a “modest positive confidence effect” from Germany’s shift “from its mini-recession until mid-2024 to significant growth from late 2025 onwards.” That could matter to its neighbors, especially because Germany is usually their most important trade partner.
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Source: https://www.cryptopolitan.com/germany-retains-sick-man-of-europe-label/
