Germany has the capacity to take on nearly €2 trillion in additional debt over the next decade without negatively impacting economic growth, according to an analysis conducted by the Financial Times. The study, based on a survey of Eurozone economists, aligns with the proposed fiscal expansion plan of Friedrich Merz, the expected future chancellor, and his coalition government.
The findings indicate that Germany, Europe’s largest economy, could increase its fiscal burden from the current 63% of GDP to 86% over the next decade. The 28 economists polled estimated that this would provide fiscal space amounting to €1.9 trillion, a significant sum that could be directed towards critical infrastructure upgrades, defense spending, and economic modernization.
“Germany has a large fiscal capacity,” said Marcello Messori, a professor at the European University Institute in Florence. He emphasized that any additional borrowing should be strategically deployed to boost Germany’s high-tech industries and facilitate a successful green transition.
The study follows the recent announcement by Merz’s Christian Democrats and their likely coalition partners, the Social Democrats, outlining plans to modernize the country’s aging infrastructure and strengthen its defense capabilities. Economists anticipate that these efforts could require at least €1 trillion in new public borrowing over the next ten years.
Jesper Rangvid, a professor at Copenhagen Business School, argued that Germany has “room to borrow responsibly,” estimating that a debt level between 80% and 90% of GDP would remain manageable. He highlighted the urgent need to improve the nation’s inefficient rail system, digital infrastructure, and other critical services.
The Financial Times’ calculations of Germany’s fiscal space assume a nominal GDP growth of 2% per year, increasing the country’s economy from €4.3 trillion to €5.4 trillion by 2035. This estimate is conservative, as it does not factor in real GDP expansion beyond inflation.
Despite the positive fiscal outlook, economists stressed that borrowing alone is insufficient to address Germany’s economic challenges. Several experts pointed to the country’s excessive bureaucracy and outdated tax regime as barriers to growth. Willem Buiter, former chief economist at Citi, criticized Germany’s economic model, calling it “grotesquely over-regulated.”
Meanwhile, the incoming government’s early policy proposals have sparked debate among economic analysts. Instead of focusing on deregulation and pro-growth structural reforms, Merz’s coalition has promised new social benefits, including higher pensions for non-working mothers, reduced VAT for restaurants, and renewed fuel subsidies for farmers. Some experts, such as Bert Flossbach of asset management firm Flossbach von Storch, warned that this approach could inflate Germany’s already expansive welfare state.
Jörg Krämer, chief economist at Commerzbank, urged Merz to shift away from state intervention and instead foster a more business-friendly environment. He advocated for reducing state influence and empowering private enterprises to drive economic growth.
The survey also examined Germany’s strict “debt brake,” a constitutional rule limiting additional spending to 0.35% of GDP per year. All 41 economists who responded to this question called for easing the rule, with 29% advocating for its complete abolition and 41% supporting significant flexibility reforms. No respondents supported keeping the restriction unchanged or making it stricter.
Martin Moryson, global head of economics at German asset manager DWS, described Germany’s fiscal conservatism as outdated, arguing that long-overdue reforms are needed to adapt to current economic demands. He noted that the incoming government appears aware of the “magnitude of the task” and is ready to take action.
However, political opposition remains an obstacle. The Green Party has voiced concerns over plans to increase defense spending beyond 1% of GDP while keeping it outside the debt brake. Since such changes require constitutional amendments and a two-thirds majority in the Bundesrat, their resistance could pose a significant challenge to Merz’s fiscal strategy.
