Introduction

In previous newsletters we looked at the Brexit Re-set, US tariffs, and unconvincing responses to high government debt. Now we examine the response to all of this in the supposed growth engine of the EU economy – Germany.

The response is the same bland and empty phrases that plague all Western governments, so much the worse in Germany for being the product of weeks of refinement by the major political parties.

Germany is firmly in the grip of a UniParty, offering no substantive difference in policies whichever party is nominally in power. Indeed the Western world now has OmniParty – a cookie-cutter, replica UniParty in each of its member states.

Political background

A new government has been formed after the recent Bundestag (Parliamentary) election – between the Conservative parties of the CDU and its Bavarian sister the CSU, and the Social Democrats of the SPD.

A new strong man of Europe was hailed, the CDU’s Federal Chancellor-in-waiting Friedrich Merz, except that when it came to a vote in the Bundestag to confirm his position, he failed to get adequate votes in the first round – a humiliation.

Harsh words were had and arms twisted in the tearoom and then he was approved at the second time of asking: strong man became lame duck within the hour.

Now he is in place, with his coalition around him, and a Coalition Contract between SPD and CDU/CSU from which to read his action plan.¹ The Coalition Contract replaces the party manifestos that electors voted for, so it is a prospectus no-one voted for. It resulted from negotiations whose primary aim was to keep the Alternative für Deutschland out of power, and to marginalise the leftists – the Green and Linke parties.

The stresses are laid on economic growth, stronger defence, and reducing burdens on business. But isn’t everyone saying that? What exactly will be the means to this end and in what way do they differ from the UK’s (and everyone else’s) proposed steps towards the same objectives?

Economic growth

GDP should grow by at least 1% per annum in real terms within Germany’s ‘social market’ economy (89).² Taxes, fees and charges, and energy prices should all fall (94-5). Bureaucracy should be reduced (96).

Germany will pursue an active foreign trade policy (96), except that this will occur within the confines of EU trade agreements and policies, by which Germany is bound (258-271).

The car industry will be revived via electric and hydrogen vehicles (203-215), within the context of decarbonisation (95).

Innovation will occur (100-109), investment will increase (110-133), Germany will become less dependent on the import of foreign primary raw materials (301-312), and more tourists will come to Germany.³

The land will flow with milk and honey, by command of the coalition, just as the UK’s economy will grow by the command of Rachel Reeves.

Work and social policy

This section could have been copied from the UK Labour Party manifesto for the 2024 General Election, and contains a strengthening of the safety net of social protections across the board:

• Ensuring availability of suitably qualified staff by setting more women to work (403)
• Streamlining social security payments (442)
• Widening employment protections to further areas of the economy like couriers and lorry drivers (481)
• Minimum wage (544)
• Locking-in of old age pension increases (586)
• Inclusivity, or DEI (Diversity, Equity, Inclusion) as it would be called in the UK (544)

This significant extra set of financial burdens on the economy is testament to the power of the SPD in the coalition negotiations, and to the failure of the CDU/CSU to reach its targeted proportion of seats in the Bundestag. Admittedly even that would have left them some way from an overall majority, but failure strengthened the hand of the SPD and has resulted in a Liberal-Left programme, not that the CDU/CSU were offering a Rightist alternative to begin with.

Reduction of burdens on business

The word ‘de-regulation’ is not used; the euphemism ‘unburdening’ is used instead, and in a sub-section of ‘Effective unburdening, stable finances, a competent state’ entitled ‘Reduction in bureaucracy, modernising the state and modern justice’, all of that filling pp. 56-65.

The concerning thing here is the echo of Rachel Reeves’ wording about ‘the active, strategic state’,⁴ and the inference that the ‘unburdening’ will occur thanks to new state interventions, rather than the state exiting its involvement in areas of national life.

The section then leads off with modernising the state (1786), a greater use of digital means for businesses and individuals to interact with the state (1798), reorganisation savings (1810), cross-entity cooperation (1822), avoidance of duplication (1828), culture change (1834), and on and on under a series of headings which in the UK would be known as ‘hygiene factors’,⁵ and in the USA as ‘motherhood and apple pie’.⁶

Finally we hit gold (1942-5): bureaucracy costs for business will fall by 25% (or €16 billion) and the cost of fulfilment and administration for businesses and individuals will fall by €10 billion.

The inference is that this will be achieved via the easing of the burden of compliance with regulation, not by the easing of regulation itself, upon which the Coalition Contract is silent.

Stable finances

Under this heading there are several specific give-aways:

• Accelerated depreciation on defence industry investments (1430-1)
• Income tax cuts for those on medium and low incomes (1442)
• Tax incentives for working longer hours, for overtime, for working beyond retirement age (163-82)
• Reducing energy costs for business (1500-05)

These items reduce the state’s income, and will tend to worsen the public finances.

But the biggest item on the entire agenda – the release of the Debt Brake – merits only a few lines (1612-6) and it is worth having them in full: ‘We will establish an expert commission with the participation of the Deutsche Bundesbank and the Federal states with the task of furnishing a proposal for the modernisation of the Debt Brake, which should enable permanently higher levels of investment for the strengthening of our nation. We aim to pass the necessary legislation based on this proposal by the end of 2025’.⁷

In other words, although the German constitution was altered to permit the amendment of the Debt Brake, nothing concrete has been decided upon.

Defence

This section contains a global tour d’horizon and threat assessment and three strategic statements:

• There must be much higher spending on defence (4131-2)
• Germany’s armed forces must be brought to a far higher state-of-readiness (4141-2)
• The size of the EU Budget for the 2028-34 (the Multiannual Financial Framework) must meet the historic challenges and not just continue the status quo (4359-62)

A range of capabilities is given for what might be invested in, but no specifics on dates, quantities, and costs.

Summary and conclusions

While the paper uses the phrase ‘historic challenges’ and describes a major sea change in external circumstances, its proposals speak of the traditional German belief that stolid, cooperative dialogue will solve the problems, all problems being known and being susceptible to tried-and-tested methods. No out-of-the-box thinking is needed.

There is a lack of candid admission of the degree to which their economic fate is decided in Brussels, and is dependent upon the whims of Donald Trump. The Coalition Contract requires both a Feasibility Study for its compliance with existing EU law and with EU proposals in the pipeline, and a Sensitivity Analysis against the possible directions and landing-points of Trump’s tariff policy. Without this backing, the Coalition Contract hangs in a vacuum.

As it is, the watchword is that ‘Germany is Germany and can’t go under’. What happens if it does, or at least starts sliding into a downturn? Do the Germans start blaming somebody else: the UK, France, Italy, the USA, the EU?

Perhaps the Coalition Contract is best summed up by lines 222-234: Germans themselves will go into outer space, where their politicians appear already to be living, in a vacuum, thrilled with their vacuous Coalition Contract.

² https://www.koalitionsvertrag2025.de/ accessed on 27 May 2025: it is 146 pages long and each line is numbered, starting with the Preamble from lines 1 to 82 on pp. 3-5 of the document, and the policies lasting from line 83 to 4,588 starting on p. 6 and finishing on p. 146

² 89 is the line number in the Coalition Contract, as all the numbers in brackets are

³ If persons are in transit (‘Transitverkehr’), perhaps they can be forced out of their cars, trains, planes, and buses, and into remaining in Germany and visiting its places-of-interest

⁴ 2024 Mais Lecture – https://www.lyddonconsulting.com/rachel-reeves-stripping-away-the-jargon-the-full-analysis-of-the-2024-mais-lecture/ accessed on 30 May 2025

⁵ Factors that should be assumed to exist as a given. They are pre-requisites of success, but their existence cannot be claimed as a success in itself

⁶ Basic components of everyday life whose presence cannot be claimed as a bonus, such that any statement that does so is high-sounding but essentially meaningless

⁷ ‘Wir werden eine Expertenkommission unter Beteiligung des Deutschen Bundestages und der Länder einsetzen, die einen Vorschlag für eine Modernisierung der Schuldenbremse entwickelt, die dauerhaft zusätzliche Investitionen in die Stärkung unseres Landes ermöglicht. Auf dieser Grundlage wollen wir die Gesetzgebung bis Ende 2025 abschließen.’

Photo by Nikolay Kovalenko