What is the point of the CDU?

Germany's centre-right party has strayed from its ideals

CDU/ Tim Hoffmann

Dear Reader,

I’ve written a few times in the past couple of weeks about the deception that the CDU carried out in pretending that they would finance the modernisation of the army and the country’s dilapidated infrastructure via welfare reform and spending cuts.

The lies that Friedrich Merz and his party told ahead of the election are so glaring that they are likely to further erode trust in the traditional political class. In a poll released on Tuesday, the same day that the debt package passed through the Bundestag, the AfD crept within four points of the CDU, on 23 percent to the centre-right party’s 27 percent.

Ahead of Tuesday’s vote, Green party leader Britta Haßelmann observed that the CDU had wasted 18 months by rejecting a reform of the debt brake rules when they were in the opposition. “We all knew that the country badly needed investment, but you were too busy defaming me and my colleagues,” she told Merz in the Bundestag.

She has a point. Germany hasn’t had a functional government since November 2023, when the Constitutional Court sided with the CDU in its complaint against Olaf Scholz’ debt-based climate fund. The court ruling meant that €60 billion was cut out of the government’s kitty and Scholz’ cabinet sank into a bitter argument over where to cut money.

By challenging the climate fund in court in 2023, the CDU brought the 'traffic light coalition’ (SPD, Greens and FDP) to its knees. Merz took the moral high ground, claiming that government spending should be based on tax receipts rather than debt loaded onto future generations. He then flatly rejected overtures from the Greens and the SPD on working together to reform the constitutionally enshrined debt brake. Merz’ moral rejection of debt-based spending held all the way up to the election… and then disappeared overnight as soon as he was within touching distance of the government coffers.

Reading through the text of the bill of the CDU’s mega debt package, I had to rub my eyes at the intellectual justification they provide for going into the red to the tune of a trillion euros:

The new debts will “contribute to the sustainability of public finances because the additional economic growth (that they create) more than compensates for the negative effects of higher debt levels in the medium term. Due to higher growth rates, the sustainability of public finances will be maintained even with higher absolute debt,” the introductory blurb states.

In the Bundestag debate, Merz veered even further to the Left, deploying Maoist language to claim that the money would be used to create a “great leap forward.”

That is quite the Damascene conversion! A party that used to insist that borrowing money now would come back to haunt future governments suddenly sees debt as a silver bullet that will improve the fortunes of coming generations.

How to explain this sudden conversion? Did John Maynard Keynes appear to Friedrich Merz on the road to the chancellery and show him the way of light?

Or, perhaps former finance minister Christian Lindner was closer to the truth when he asked in the Bundestag: “Who is that man sitting over there and what has he done with Friedrich Merz?”

Or, perhaps taking on such large debt helped Merz to plumb together a coalition with the SPD, ensuring that neither had to agree to cuts that would anger sections of their voting bases.

The SPD, now the junior partner, are delighted. They have hailed the debt package as a “historic signal” that will “put Germany back on its feet” and put the fear of God into Putin and Trump. Fair enough - fretting about runaway state expenditure was never really the SPD’s thing.

But where does this leave the CDU? They were supposed to be the party of ordo-liberalism, the ones who worried that the side effects of state borrowing outweighed the short-term sugar hit that it gives.

To read through the opinion pages of German newspapers these days, you could think that prioritising low debt was just a fad of the 2010s. Columnists regularly wheel out cliches about thrifty Swabian housewives or “Schwarze-null fetishists” to describe Germany’s fascination with balancing its books, as it was a kink picked up by a finance minister at KitKat club.

Largely ignored is the fact that fiscal prudence was a painful lesson of the last existential crisis Europe faced, when heavily indebted eurozone countries could no longer afford the interest on their loans. For several years between 2010 and 2015, German glossies splashed headlines about “a continent on the verge of bankruptcy” across their front covers.

Faced with the collapse of the euro, Berlin reluctantly agreed to vouch for the debts of spendthrift southern neighbours. That was the watershed moment that tipped the EU from being a federation of states into becoming something closer to a federal state. In return, Germany insisted that southern Europeans adopt a Teutonic work ethic. Angela Merkel ticked them off for going on holiday too often and demanded that they also write debt brakes into their laws.

A decade on, though, little has changed.

Southern Europe still hasn’t got its spending under control and is almost as indebted now as it was on the eve of the eurozone crisis. Germany’s ordoliberal economists still have sleepless nights at the thought that a sudden rise in the yields on eurozone bonds could trigger a new sovereign debt crisis.

So, when Merz’ announcement of his trillion euro debt package led to the biggest one-day jump in the yields on German bonds since 1990, alarm bells started to ring.

A group of seven leading ordoliberal economists wrote a letter to Die Zeit condemning the plan. The debt package would “significantly increase the vulnerability of European public finances to crises and will erode Europe’s ability to defend itself,” they warned.

The economists pointed out that bond yields in Europe are linked. When German bond yields go up - so do those of its neighbours. A decision by Berlin to take on more debt means that Rome and Paris suddenly have to spend more money on interest payments. In the long run, that constrains these countries in their ability to spend on defence.

In a statement to the Bundestag finance committee, economist Veronika Grimm, a member of the so-called “wise men” who counsel the government on the economy, cautioned that an enemy state “can and will” seek to exploit weak European finances in the same way that Putin used gas as a weapon in 2022.

As for the CDU’s claim that the debt would be “more than compensated for” by the resultant growth in GDP, Grimm said that, if debt is used to mask the need for reform in the housing market or the pension system, “Germany will find itself in a similar situation in a few years with low growth but higher debts.”

Another prominent ordoliberal thinker, Lars Feld, projected that Germany would end up with a 90 percent debt-to-GDP level in a decade - up from 60 percent now. The CDU have given the debt brake “a second rate funeral,” he fumed.

Of course, these fears could turn out to be unfounded - let’s hope so. But it raises the question: what is the point in the CDU now? If this debt package works, then it shows that the SPD and Greens were right all along about the benefits of debt. If it fails, they were wrong. Either way, it opens up a gaping space on the right of German politics.