Germany too optimistic about growth and spending, but EU Commission lets it slide

Brussels – A growth plan deliberately over-optimistic in its estimates to create spending margins to finance the defence industry, with the approval of the European Commission. Germany is in danger of becoming a “case”, for a way of doing things that is not very typical of Germany and, above all, not very careful with regard to EU budgetary rules. The warning comes from the Bruegel think tank, in the institute’s analysis of the budget plan Berlin presented in July. 

After appropriate evaluations, the experts concluded that Germany’s structural medium-term fiscal plan of July 2025 is based on “overly optimistic assumptions of GDP growth and inflation trends,”
and by proposing a large, backloaded fiscal adjustment. Although at first glance the Merz government’s recipe seems to comply with the German rigorist approach, and recognises the right focus on meeting the deficit (3 per cent relative to GDP) and debt (60 per cent relative to GDP) thresholds, in reality “the conservative approach of the German fiscal plan is to some extent an illusion, as it is based on optimistic assumptions about nominal growth
that will likely not come to pass,” warns Bruegel. Under more realistic assumptions, the structural primary balance will be well below the projections in the government document, with debt continuing to grow, albeit more slowly.