Fiscal rigidity, green tokenism and militarised stimulus reflect deeper systemic inertia
On 6 May 2025, Germany’s new government officially took office. Led by the conservative Christian Democrats (CDU) in coalition with the centre-left Social Democratic Party (SPD), the administration under Chancellor Friedrich Merz presents itself as a new political constellation. And yet, the broad fiscal direction of this government had already been predetermined—by the very coalition it replaced.
In one of its final acts, the outgoing government pushed through a constitutional reform of Germany’s so-called debt brake, the strict balanced budget rule enshrined in the country’s Basic Law. This was no unilateral move. Because the CDU, while still formally part of the outgoing coalition, had already positioned itself as the core of the incoming one, it was able to shape the amendment from both sides of power. In effect, the reform was negotiated between a fading government and its successor in waiting.
The result? Not a loosening of fiscal constraints in light of urgent ecological and social needs, but a selective exemption: military spending was carved out of the rule. From now on, defence budgets can expand without limit, while virtually all other public investment remains subject to the austerity framework.
To secure parliamentary support, a concession was made: €500 billion in infrastructure investment over twelve years, including €100 billion ring-fenced for climate and energy. While this was presented as a green win, it was in reality a trade-off—designed to make a regressive structural shift more politically palatable. The core remains untouched: austerity for the civilian realm, flexibility for the military.
From a democratic perspective, this is deeply troubling. A government that had just lost its electoral mandate used its remaining days to lock in a long-term fiscal trajectory—by constitutional means. But beyond questions of legitimacy lies a deeper failure: the near-total absence of macroeconomic reasoning.
When governments spend more than they tax, they inject financial means into the economy. This is not fiscal recklessness—it is a necessary function when the private sector is saving. As John Maynard Keynes argued, when households withdraw spending, someone must step in to sustain demand. Otherwise, output falls and unemployment rises.
Germany’s fiscal architecture ignores this logic entirely. It treats public budgets as if they were household budgets, overlooking the fact that one sector’s surplus is always another’s deficit. This confusion has now been inscribed in constitutional stone.
When the investment plan was introduced barely a month ago, its scope may have seemed adequate. But economies are not linear systems. They do not evolve in stable cycles. They unfold in what Keynesians call historical time—a dynamic, path-dependent process shaped by irreversible decisions and unpredictable shocks.
That’s why binding long-term fiscal commitments to fixed constitutional rules is a dangerous game. Today’s economic conditions are not tomorrow’s. Trade disputes, energy shocks or ecological tipping points can all disrupt the baseline. A rigid fiscal regime imposed on a dynamic and volatile system is not prudent planning—it is structural dysfunction.
This contradiction is especially stark in the context of ecological transition. Meeting the demands of climate stability requires more than predefined targets and token gestures. It calls for adaptive, sustained public investment capable of responding to crises in real time. Instead, Germany has chosen to lock its fiscal response—except, of course, when it comes to military expansion.
Meanwhile, the new government is calling for an increase in labour supply: higher workforce participation, longer working lives, and more working hours overall. Yet to create these additional jobs, it would need to increase public spending—something it has made structurally impossible by recommitting to the debt brake. In other words, it follows a growth narrative without enabling the very growth it prescribes.
That is not, by any means, a cause for celebration. While I support a reduction in working time, I do not advocate it as the unintended fallout of an economic crisis marked by rising unemployment—as the current government’s incoherent strategy may well provoke. Instead, I argue for a consciously planned transition, in which shorter working weeks are implemented deliberately as part of a just and sustainable macroeconomic framework.
Germany’s net-zero target for 2045 is not credible within this framework. Nor is any genuine just transition that seeks to reconcile ecological sustainability with economic security. A government that calls for more labour while restricting the very fiscal means to create it is not breaking with the past—it is entrenching it. What we are witnessing is not the emergence of a new political economy, but the retrenchment of an old one—camouflaged in new rhetorical colours.
This is not just Germany’s impasse. Across the Global North, we see the same contradictory blend of green austerity, militarised stimulus, and technocratic control displacing democratic deliberation. Working time reduction, planned as a macroeconomic strategy, remains one of the few consistent pathways toward a post-growth economy. But so long as fiscal policy remains bound by outdated assumptions, the promise of transformation will remain symbolic—and the future will continue to be mortgaged to the broken logics of the present.