- On 23 February Friedrich Merz’s CDU won the German federal election.
- The future chancellor signalled a fiscal turn to invest in defence and infrastructure.
- When the largest economy in the euro area changes course, the effect reaches all of European industry, including Spain’s.
On 23 February 2025, Friedrich Merz’s CDU won the German federal election. The future chancellor signalled a change of course in fiscal policy, with the intention of investing more in defence and infrastructure. Germany is Europe’s largest economy, and a decision of that weight in Berlin is followed closely in every capital of the continent. For business owners and families, the useful question is not who won, but what may change in prices, in financing and in demand for companies that sell to Germany.
The result of an election is usually read in political terms, but it also carries an economic message. In this case, the message was that the country that had long been a byword for budgetary prudence was considering spending more, at a time when Europe was debating how to strengthen its security and how to relaunch its growth. A turn of this kind does not happen overnight: it requires government agreements, parliamentary procedures and, where applicable, changes to fiscal rules, so what is announced and what ends up being approved can be different things.
A stagnant economy
Germany, Europe’s great economy, had been stagnant for some time. Its industry depends on energy, on exports and on infrastructure that needed investment, and its weakness was felt beyond its borders. When a continent’s locomotive loses momentum, the countries that sell it goods and services see it in their orders. That is why the health of the German economy is, to a large extent, a European matter.
That situation explains why a promise of public investment arouses so much interest. Roads, railways, energy, digitalisation or military equipment are areas in which spending generates activity in many companies, and its effect does not end when the investment is made but conditions future productive capacity.
A turn in fiscal policy
The announcement of a change of course in fiscal policy, with more investment in defence and infrastructure, pointed to a country preparing to spend. When the largest economy in the euro area changes policy, the effects are transmitted to growth, to interest rates and to the continent’s supply chains.
Greater issuance of public debt can push long-term interest rates upwards, which matters to anyone with loans or planning to borrow. At the same time, greater spending can stimulate demand across the region. Both effects coexist, and the balance will depend on the timing and the specific content of the plan, which was still to be known. For savers and borrowers alike, the prudent reading is that rates can move in either direction and that it is wise to plan with some margin.
What it means for Spanish industry
A change with effects across European industry, including Spain’s, which supplies German factories. Companies that supply components, machinery or industrial services may benefit from a German upturn, which is why it is worth following the timing and content of that plan closely.
For a company with customers in Germany, it is a good moment to review the weight of that market in sales, the strength of its contracts and its capacity to serve more orders if they come. The prudent course is not to take for granted an effect that has not yet materialised, and to prepare the organisation for several scenarios. An adviser can help to measure how much the business depends on that market and to identify which customers, sectors or regions concentrate the risk and the opportunity.
What Berlin decides rarely stays in Berlin.
This article is general information. It is not legal, tax or investment advice, and it does not take anyone’s particular circumstances into account.
