German fiscal big bang, tariffs and our forecasts
The CDU/CSU and SPD have agreed on a huge fiscal package, and the likelihood of tariffs against the EU has increased significantly.
Commerzbank Economic Research
03/07/2025
Trade conflict between EU and US more likely, ...
Two important inputs for our forecasts, US tariff policy and German fiscal policy, have developed differently than we had previously assumed. The Trump administration's aggressive approach against Canada and Mexico (even if some measures have been partly postponed) has increased the risk of a severe trade conflict between the US and the EU. We now consider it the most likely scenario that the US will impose significant tariffs of 25% on at least some key industries such as the automotive and pharmaceutical industries.
... but German fiscal policy will be significantly more expansionary
In addition, the CDU/CSU and SPD – who will in all likelihood form the next German government – agreed this week on a significantly more expansionary fiscal policy than we had previously assumed. For example, most of the defense spending will no longer be counted towards the constitutional debt brake. In addition, 500 billion euros are to be raised over the next ten years via an extra-budgetary fund (“special fund”) for infrastructure investments, with these debts also not to be counted towards the debt brake. Finally, the debt brake is to be relaxed for the federal states. We assume that the necessary amendment of the constitution will ultimately receive a two-thirds majority in both the Bundestag and the Bundesrat, although this is not entirely certain.
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