To treat Germany, the “sick man” of Europe, the Union of Christian Democrats (CDU) has concocted a syrup of its own. Its chief doctor, Friedrich Merz, does not intend to sit idly by in the face of the country’s decline. In the run-up to the early legislative elections on February 23, the conservative party – said to be the favorite in the race for the chancellorship – adopted a manifesto, “Agenda 2030”. His compass: at least 2% GDP growth “in the medium term”. His watchword: all-round reductions.
This plan provides for nothing less than “the most comprehensive tax reform in decades.” With, on the program, a reduction in corporate tax, tax exemption for overtime or even a modification of the income tax scale. “If implemented gradually, this new tax regime could provide a framework conducive to greater competitiveness, by stimulating investment and therefore innovation,” hopes Martin Werding, member of the German Council of Economic Experts.
A more attractive tax system
Since the end of the last mandate of the CDU, in 2021, marked by the withdrawal from political life of Angela Merkel, the German economy, faced with external pressures, has changed its face. China’s production overcapacity has increased, the gigantic American Inflation Reduction Act plan and the energy crisis have eroded competitiveness across the Rhine. Once engines of growth, national flagships like BASF and Volkswagen are now considering laying off and closing factories. Despite everything, there is no question for the Conservative Party of launching into a race for subsidies. Its bet is to boost attractiveness by activating the tax lever. Will the manufacturers play the game? Not sure, says Céline Antonin, economist at the OFCE: “Many companies choose to set up in the United States because energy costs are more advantageous there. This program will be able to slow down relocations, but not stop them.”
CDU proposals to revive the German economy
© / The Express
To respond to the difficulties of electro-intensive sectors, the 2030 Agenda promises to save at least five cents on the price of a kilowatt hour. However, in a country affected by the phase-out of nuclear power and trapped by its dependence on Russian gas, this economic measure will not be sufficient. “At present, this reduction is the maximum the CDU can count on,” explains Martin Werding. “But we will also have to develop a long-term energy strategy to resolve the complicated situation we have found ourselves in.”
Finally, on the environmental side, Friedrich Merz is not embarrassed. Circumspective regarding green hydrogen and steel, he made it clear that he would return to the priority given to the climate in the development of economic policies in recent years. With this in mind, the 2030 Agenda reaffirms the intention to lift the ban on combustion engines by 2035 – a hobbyhorse of conservatives for months.
Unemployment and bureaucracy
Transforming the labor market is the second priority. On this point, the CDU program recalls Gerhard Schröder’s Agenda 2010, a series of reforms criticized, including within his own camp, but which bore fruit a few years later, curbing unemployment and reviving the growth. “The aim is to make work more financially attractive. Today, the additional income you get from working more is too low,” notes Bjoern Griesbach, euro zone economist at Allianz.
Demographic decline is another constraint weighing on the labor market: the German working-age population is expected to increase from 52 to 43 million by 2050, according to Allianz estimates. To counter this trend, the CDU is banking on immigration. But not just any one. A digital Federal Agency for Skilled Immigration will be created with the aim of speeding up recruitment procedures. “This is an interesting idea since, today, decisions on work visas are made at the local level, which makes the process complex and inefficient,” considers Bjoern Griesbach. Conversely, the rules on illegal immigration will be tightened, promise the CDU and its Bavarian ally, the CSU.
Cuts in the number of civil servants and simplifications of administrative procedures are, finally, on the menu. A major subject, since this excessive bureaucracy would cost the German economy 146 billion euros per year, according to the Ifo Institut. Criticizing the policy of the previous coalition, the CDU wants a “State less a giver of lessons than a provider of services”. The conservatives do not have a monopoly on the hunt for administrative waste: the government of Olaf Scholz also took up the issue, with a relief law adopted last fall. “The CDU’s proposals are not revolutionary. But if they allowed us to stay on the path traced by the previous team, that would be good news for competitiveness,” said Martin Werding.
A hole in the budget
Reduce the tax burden, free businesses from paperwork, work more to earn more… The order is classic. Will she get the German patient back on his feet? “The 2% objective is not unattainable, admits Céline Antonin. But reconciling the budgetary golden rule [NDLR : le “frein à l’endettement” qui limite le déficit à 0,35 % du PIB]to which the Germans are so attached, and this fiscal expansionism is a bit like squaring the circle.” Because reducing taxes has a price. According to calculations by the German Economic Institute (IW), it would be around 90 billion euros per year. “This will be a significant hole in the federal budget,” adds Martin Werding. The CDU program does not really mention financing levers and it will probably remain silent on this point during the electoral campaign.”
For her part, Franziska Palmas, economist at Capital Economics, considers the 2% objective “extremely ambitious”, at a time when estimates of potential growth are less than 1%. “Some proposed measures go in the right direction but they lack scope: for example, to cope with the decline in the working-age population, the party could have proposed raising the retirement age,” she says. More structurally, the CDU program does not question the fundamentals of the “German model”, long driven by exports and which today finds itself weakened. “The CDU wants to save this model rather than focusing on reviving domestic demand,” analyzes Céline Antonin.
Friedrich Merz intends to quickly move from words to action: the tax transformation must begin in January 2026. It remains to be seen what the coalition will look like. In the event of a rapprochement with the Social Democrats or the Greens, the CDU will have to choose its battles. “In this scenario, they will probably focus on lowering income tax. However, the latter should not have a major effect on growth,” estimates Franziska Palmas. And added, with a touch of pessimism: “Whoever wins the elections, we should not expect the next government to suddenly reverse the trend. Faced with increased competition from China in the industry automobile and the aging of the population, the room for maneuver is limited.” The convalescence is likely to last a long time.
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