FREE

Next German Government: More Public Spending Is Likely; Fiscal Regime Change Is Not

As expected, the German election on September 26, 2021 did not result in a clear winner. With a narrow victory, the Social Democratic Party (SPD) will have the first opportunity to negotiate and form a governing coalition. The next coalition government will likely include multiple parties with disparate ideologies, complicating the successful execution of campaign promises made by any one political party. While probable that the next government will be more sympathetic than previous governments to expansionary public spending to address the country's medium-term structural challenges, DBRS Morningstar does not expect any major regime change in German fiscal policy.

Key highlights include:
• No clear election winner leaves the Greens and Free Democrats in a king-making position.
• Irrespective of the coalition formed, pressure will continue to mount for more public spending.
• Despite the increased likelihood of a more expansionary fiscal policy, we do not expect any significant revision to the constitutional fiscal rules.


“DBRS Morningstar interprets the election result as a public swing towards a more accelerated energy transition and infrastructure improvements. More public spending will be required to meet these popular demands, regardless of the eventual coalition government formed,” says Jason Graffam Vice President in the Global Sovereign Ratings Group.

“However, parliamentary arithmetic suggests change to Germany's statutory debt break rule is highly unlikely, and DBRS Morningstar expects Germany to maintain its clear commitment to fiscal prudence and debt reduction.”