Since 2019, the German economy has stagnated, and the negative impact of Covid has been caught up with but not overcome. German GDP increased from 100 to 100.2 between 2019 and 2024. In France, using the same benchmarks, the 2024 figure is 103.5, and that of the Eurozone is 104.7.
Germany’s slow growth has been a handicap for Europe. The infrastructure stimulus package and the increased military budget could change everything. The measures are of significant magnitude. They represent a boost of 1% of GDP each year over 10 years. However, the distribution of spending over time is unknown.

Two points:
Since the German state is not indebted, it will easily find financing even if the interest rates paid on the debt are a little higher. There will be no immediate spending arbitrage, thus facilitating the speed and effectiveness of the plan.

The second aspect is that by prioritizing infrastructure, digital technology, and renewable energy, the plan will revive the German domestic market. This recovery, first through businesses, then the job market, and finally consumers, will increase imports, which will benefit Germany’s partners.
When German domestic demand grows faster than France’s, Franco-German trade improves rapidly, benefiting France. This mechanism also applies to Italy and other European countries, as Germany is generally their largest economic partner. This will result in an acceleration effect.

So Italy, which will export more to Germany, will use French products for its manufacturing….
It is this multiplier effect which will have a very favorable and lasting impact on the European economy.

Two more remarks:
The German model depended on Chinese impulses for its exports, cheap energy from Russia, and the American military umbrella. Nothing works anymore. This is an opportunity to refocus German activity to satisfy, in Europe, this quest for autonomy in decision-making and production in a more hostile world.
This plan gives substance to Europe in the medium term. It should also provide opportunities for new institutions that promote further integration, such as the Capital Markets Union.

The second observation is that the inflationary nature of the spending will depend on the sequence of expenditures. If they are too high at the outset, this would result in new wage pressures, the consequence of which could generate inflationary risks.

This plan should ultimately help reduce downward pressure on struggling sectors. It won’t turn them into Phoenixes, but it will limit a form of systemic risk while allowing the development of new activities.