European Central Bank President Christine Lagarde praised Germany for finally opening its purse strings
European Central Bank President Christine Lagarde said on Saturday that Germany has finally decided to spend big after years of restraint, calling it a turning point for Europe’s largest economy.
Speaking in Washington during the IMF’s annual meetings, Lagarde said fiscal policy “will play a more supportive role in the years ahead,” especially for countries increasing defense investments, pointing out that “this is certainly the case (in a big way) by Germany, where major military and infrastructure investments are underway.”
Lagarde added that those projects “are just beginning to have an impact but will be rolled out over the next three years in a very significant way,” according to Bloomberg.
Lagarde said Germany is finally “using its balance sheet and its capacity to borrow,” signaling the end of its long-standing reluctance to spend. Much of that change comes from Friedrich Merz, the new German chancellor, who pushed through a landmark spending bill before even taking office.
The plan unlocks federal borrowing to rebuild Germany’s infrastructure and overhaul its military. Lagarde described it bluntly: “Agent of change Germany — who would have thought?”
Germany boosts growth plans with €400 billion investment drive
Sharing the stage with Lagarde, International Monetary Fund Managing Director Kristalina Georgieva praised the decision.“My message is: bravo, bravo, bravo,” she said.“Because what Germany is demonstrating is that imbalances can be addressed, it is a matter of will, and mostly political will.”
Georgieva’s remarks came as optimism builds across Europe that Germany’s fiscal push could lift growth in the region, which has long relied on the country’s cautious approach to spending.
Earlier this week, Merz proposed creating a pan-European stock exchange to strengthen competitiveness against the United States and Asia. Lagarde reacted to the plan, saying, “When I hear the German chancellor say we need in Europe one single stock market, one single supervision — that means a lot. How that will materialize, how it will take place, how it will work out, I don’t know.”
The spending program, secured before Merz took office last month, could add more than €400 billion ($470 billion) to Germany’s annual output by 2030, according to the German government’s panel of economic advisers.
That would lift average GDP growth by 1.6%, slightly above the long-term pace since reunification in 1990. Monika Schnitzer, the panel’s chair, said expectations among businesses and the public are “extremely high,” adding that “action must be taken quickly.”
Investors rally as Germany emerges from years of restraint
Investor confidence in Germany, meanwhile, has been rising all year. The DAX index has hit new records, making it one of the best-performing stock markets this year, behind only Spain’s IBEX and Hong Kong’s Hang Seng.
The enthusiasm proves the growing belief that Germany is regaining economic momentum at a time of political uncertainty in the United States under President Donald Trump.
After years of tight budgets, Germany holds the lowest debt-to-GDP ratio among G7 nations, giving it space to borrow for growth. Economists say the turnaround represents the biggest policy change in a generation. But challenges remain; political divisions and weak coordination could slow down progress if not handled carefully.
Deutsche Bank upgraded its growth forecast on the back of Merz’s fiscal plan, predicting 2% growth for Germany next year. Still, the bank warned that momentum might fade if funds are funneled into consumption rather than investment.
Alexander von zur Mühlen, Deutsche Bank’s head of Asia-Pacific, said, “Outside of Europe they say: the sleeping giant Germany has woken up. We need to use the momentum.”
Economic advisers reportedly cautioned that if spending is directed toward short-term relief like cutting restaurant taxes or incentives for electric vehicles, instead of long-term infrastructure, rail, and technology, the growth effect could be halved.
For now, Germany’s economic comeback is being tested by whether it can turn massive borrowing into lasting results, without losing focus or wasting its newfound fiscal power.
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