On Germany, or the Price of Miscalculated Virtue

Germany has protected its accounts. Less so the foundations of its prosperity. Volkswagen stopped car production in Dresden in December 2025, while BASF is reducing capacity in Ludwigshafen and investing in China. While large corporations have the world in which to expand, the country itself cannot relocate its railways.

In 2026, our German neighbour has failing transport systems and inadequate energy networks. A few quarters of growth cannot renew the infrastructure of so vast a country. The success of Germany’s large listed companies, which generate most of their revenue abroad, will not be enough to repair the railways, any more than the networks.

Berlin turned fiscal restraint into a certificate of sound management during the years of zero or negative interest rates. The constitutional debt brake was its seal, complete with an exemption for disasters or emergencies. Activated by Berlin for Covid, then for the energy crisis. After the invasion of Ukraine, a constitutional amendment also created a €100 billion special fund for the armed forces. At every crisis, then, the rule gave way.

Granted, Germany was willing to take on debt: for emergencies, not for the comfort of its citizens. Renovating the railways, modernising the electricity grid and rolling out fibre did not constitute an “emergency” under the Constitution. In November 2023, the Scholz government, having planned to reallocate €60 billion in unused Covid borrowing authorisations to a fund for climate action and modernisation, was stopped in its tracks by the Constitutional Court in Karlsruhe. The same sum authorised for the crisis could not be reassigned in this way to invest in the future.

Yet neither the bill nor the obligation disappears. Both grow with deferred maintenance, with depreciated capital, with lost productivity. While Germany’s national accounts measure the consumption of fixed capital, the deficit and gross debt criteria nevertheless overlook the preservation of the infrastructure on which its prosperity depends. Postponing a renovation improves today’s balance without repairing the bridge.

A policy must also be judged by the assets it builds and the future income it makes possible. An economy can reduce its deficit by growing poorer: it can also increase it without preparing for the future. Underinvestment thus ends up imposing levies of its own. A lorry forced onto a detour consumes fuel and time. An employee stranded on a train loses hours. A factory waits for its grid connection. The Treasury has deferred an expenditure, but businesses and households are already paying the bill. At a certain point, such a budgetary saving becomes a tax on the functioning of the country.

The investment backlog, meanwhile, can be quantified. In its survey published a few weeks ago, in June 2026, the public development bank KfW estimates the investment backlog reported by German municipalities at €231 billion. Including nearly €69 billion for schools and €54 billion for roads and transport. The figures cover only the work postponed, not the economic activity lost as a result.

The argument about future generations then turns against those who preach it. They are promised less debt, but they will inherit more repairs to undertake, a less productive economy and flagging tax revenues. Does protecting an inheritance not require looking at the assets as well as the liabilities?

A lost decade does not need a crash. Bridges age, trains slow down, investment goes elsewhere. Meanwhile, the accounts remain presentable, but the potential fades. The budget saves, but the country pays.