After years of stagnation, the German economy will receive a boost from increased government spending on defense and infrastructure, but a failure to implement flanking structural reform will mean that the boost to medium-term economic growth will be limited. In recent weeks, numerous media reports have cast doubt on German Chancellor Friedrich Merz's ambitious plans to reform the economy. Since taking office in May after forming a coalition with a slim parliamentary majority between his center-right Christian Democratic Union or CDU and the center-left Social Democratic Party or SPD, Merz's government has reformed the constitutionally mandated limits on government deficits and has committed to significant increases in defense expenditure and infrastructure, especially of transport. The new government has also agreed to implement reforms aimed at reducing growth-impeding bureaucratic rules governing product markets and infrastructure investment. However, despite these goals, thus far intra-coalition disagreements have translated into more limited practical results...
