CDU’s Economic Policies: Borrow, Spend, and Hope

Written by Andriy Vyshyvanyuk

For the last few years, Germany has experienced stagnation, industrial decline, while GDP has barely grown—just 0.3% per year. Meanwhile global instability and energy crises have further weakened Germany’s competitiveness, as Germany’s industries, once Europe’s pride, are crumbling. The car producers sector, historically a key driver of economic growth, is now struggling due to cheaper Chinese imports and a shift toward electric vehicles.

The recent election victory of the Christian Democratic Union may cause a u-turn in Germany’s economic policies. The CDU promises to break from Germany’s tradition of tight fiscal policy, supporting aggressive government borrowing to fund military expansion and reconstruction of infrastructure. Even prior to implementation, the prospects of these policies have increased confidence in the market, prompting financial institutions to revise their 2025 German growth forecasts from 0.2% to 0.7%. However, while the CDU’s approach may cause moderate growth, it does not address all of the root causes of Germany’s stagnation.

Merz’s plan marks the most significant shift in Germany’s economic policy in decades. For years, the country has strictly limited the levels of national debt, keeping borrowing at low levels compared to European countries like France or Italy. Now, with the economy weakening, the CDU wants to change that—arguing that increased borrowing is necessary to prevent further decline.

A large portion of the borrowed funds will be directed toward defense. The government hoped that rearmament would help offset the decline in car manufacturing and boost German industry. Defense spending could also make Germany a bigger player in European security, especially as trust in the US as an ally erodes. Currently, the US share in global arms export is 48% and if Germany substitutes even a fraction of that market, it could provide an economic boost.

Another pillar of the CDU’s plan is a €500 billion infrastructure fund aimed at modernizing roads, railways, and the energy sector. The government has promised €53 billion to Deutsche Bahn (Germany’s national railway) which suffers from inefficiencies and delays. However, critics argue that these infrastructure investments are more about political bargaining than economic strategy, as it may be just a concession to the Social Democratic Party in exchange for supporting increased military spending. While these investments will stimulate the construction sector, they won’t necessarily address the competitiveness crisis.

CDU has also remained silent on another Germany's economic obstacles—its high tax rates. Germany has some of the highest corporate and personal taxes rates in Europe, which discourages investment. Without tax relief, businesses may continue moving capital and talent to other countries where lower taxes and a more dynamic market offer better opportunities. Without addressing this issue, Germany risks achieving only temporary growth while its long-term competitiveness may continue decreasing.

Another issue is Germany’s failure to attract skilled migrants. Germany needs workers to promote innovations in high-tech industries, however, its immigration system remains a bureaucratic nightmare. Skilled migrants must have their qualifications recognized as equivalent to German standards, and employers must often prove that no EU citizen could fill the role before hiring a foreign worker. Meanwhile, irregular migration remains much easier, as it’s simpler to cross the Mediterranean on a makeshift boat than to immigrate legally as a highly qualified professional. If Germany doesn’t make its system more welcoming for skilled talent, its industrial and technological decline will only accelerate.

Germany now stands at a defining moment, as it is clear that the effects of CDU’s policies will shape not only Germany’s future but also the stability of the European Union. Merz has placed his bets—but whether they pay off remains to be seen.