Germany was the only country in the Group of Seven (G7) wealthy nations to suffer an economic contraction in both 2023 and 2024. One reason was the country’s “debt brake.” In place since 2009, it sharply limits the government’s ability to borrow and run economy-stimulating deficits. However, newly elect German Chancellor Friedrich Merz has now secured backing to remove the debt brake and pave the way for a massive increase in state borrowing. This will spur a boom in defence and security spending as well as 500 million euros ($545 billion U.S.) in infrastructure investment. In total, the added spending could amount to 1.0 trillion euros over the next few years. That’s more than the EU’s entire pandemic recovery fund. Meanwhile, the German economy faces challenges (see box next page). As well. the country’s reliance on exports makes it especially vulnerable to the threat of U.S. tariffs. Still, Germany’s diversified, high value-added and export-oriented economy—combined with its new stimulus measures—set it up for strong…