Dittrich called on the government to immediately do away with unnecessary bureaucracy and overhaul Germany’s social security system to control surging costs. “We must not lose our competitiveness because we cannot afford to pay for all this,” Dittrich said. “We must ensure that we can continue to invest.”
‘There is no plan’
One reason Merz’s options are limited is his relative political weakness. With the rise of the political extremes, the chancellor’s ideologically divergent coalition has one of the narrowest parliamentary majorities in Germany’s postwar history.
It was that weakness that forced Merz to undertake what may well end up being his most ambitious reforms even before taking office. In March, Merz used the outgoing parliament to push through a historic package of spending reforms that partially untethered Germany from the self-imposed spending restraints of its constitutional debt brake, creating a €500 billion infrastructure and climate fund and allowing for massive defense spending to face down the threat posed by Russian President Vladimir Putin.
Merz decided to act at that moment because the country’s centrist parties still had the two-thirds majority needed to amend the constitution while the previous parliament was still in power. That’s a majority he no longer has, limiting his ability to undertake similarly sweeping constitutional reforms.
But the bigger problem for Merz is that the spending reforms already passed are likely not enough to drive robust growth, economists say.
For one thing, there are doubts as to whether Germany’s massive defense spending increase will stimulate much economic growth, as some have hoped. In the short term, every euro the German government spends on defense will lead to only 50 cents of additional economic activity, according to a study by economists at the University of Mannheim. In the longer term the effects are hard to predict, according to the authors.