Since Thatcher, Reagan and in Australia, Howard, the pall of neo-liberalism has fallen across western economies, handing state assets and services to private profiteers. When these fail and regulation is compromised, governments are faced with the sole mechanism of legislation and royal commissions. Meanwhile, "the richer get richer and the poor get the picture".
Some European countries, among them Germany, have managed to find a balance between private investment, taxation and public services. But, even in Germany, austerity has become orthodoxy, with Merkel being praised for running a 'tight ship'.
For decades now, Germany has clung to the 'Schuldenbremse' - the debt brake - as though fiscal discipline alone were the guarantor of prosperity. It wasn’t. What it delivered was a country where school roofs literally collapse, where trains rarely run on time, where roads and bridges crumble under the weight of neglect. This is the legacy of the neo-liberal dogma of austerity and small government - and it has failed in Germany as it has failed across the globe.
Chancellor Friedrich Merz is now betting €500 billion over 12 years that Germany can undo the damage. His plan creates an ad hoc fund for modernising schools, roads, bridges, hospitals, and public transport, and it lifts all debt brake constraints on defence spending. It’s a constitutional shift - the government has rewritten the rules so it can invest heavily, after decades of underinvestment left public assets in disrepair.
The stakes go beyond potholes and train delays. Germany’s export-dependent economic model has become brittle in the face of trade wars, slowing global demand, and the phenomenal rise of industrial capacity in China - a transformation so rapid it poses an existential threat to Germany’s manufacturing base. Demographic headwinds - an ageing population and rising social costs - add urgency. Economists warn that if Germany fails to adapt, it risks economic stagnation and political fracture.
There’s a deeper political truth in this moment: austerity doesn’t just fail economically; it erodes the social contract. By hollowing out public services and letting infrastructure rot, neo-liberalism creates exactly the kind of disillusionment in which far-right, anti-democratic parties thrive. The rise of the Alternative for Germany (AfD) is not incidental; it is the predictable result of decades of policy that let the public realm collapse. The current bleak conditions in former East Germany and the popularity of the AfD in these areas is no accidental correlation.
Merz’s gamble is that massive investment in public goods will revive not only the economy but trust in democracy itself. If it works, it could set a new course for Germany and Europe. If it fails, the far right will likely inherit the ruins.
Germany’s €500bn Gamble: Burying the Neo-Liberal Dogma Before It Buries Democracy
Merz breaks from austerity orthodoxy with massive infrastructure and defence spending - betting the future on rebuilding a nation left to decay.
Germany is turning its back on decades of austerity with a €500 billion plan to rebuild crumbling infrastructure and lift defence spending. The move is as much about saving democracy as saving the economy - and shielding German industry from a surging China.