Parties unveil plans to rescue Germany from economic doldrums

By Andreas Rinke and Matthias Williams

BERLIN (Reuters) – Germany’s main political parties will unveil their manifestos on Tuesday, offering competing visions to lift Europe’s largest economy out of the doldrums while fighting off a far-right surge ahead of a snap election on Feb. 23.

Germans will go to the polls after Chancellor Olaf Scholz’s three-way coalition collapsed last month, likely spelling the end for Germany’s most unpopular leader in modern times and the return to power of the main opposition conservatives.

The election comes at a testing time for Germany. Its economy is set to shrink for a second straight year, industrial giants like Volkswagen (ETR:VOWG_p) face an existential threat from foreign rivals and political attitudes are hardening towards migrants.

Details of the parties’ election manifestos have already leaked out, with the economy, welfare, migration and the war in Ukraine dominating the headlines. Campaigning has kicked into gear after Scholz lost a confidence vote on Monday, as expected.

The conservative frontrunner Friedrich Merz and his Christian Democratic Union party (CDU) want cuts to income and corporation taxes and lower electricity prices as a way to boost the economy.

However, while signalling some openness to moderate reform, he has so far said he plans to stick to a constitutionally-enshrined government spending cap known as the debt brake. The tool was introduced after the 2009 financial crisis but critics say it hobbles growth by restricting borrowing and investment.

Scholz’s Social Democrats (SPD) want to reform the debt brake.

Battling to regain the initiative, the SPD has also proposed incentivising private investment and modernising infrastructure with an off-budget 100 billion euro fund. They plan to introduce a “Made in Germany” premium to boost investment.

DIVISIONS ON UKRAINE

Germany under Scholz has ramped up defence spending and become the second biggest military backer of Ukraine behind the United States.

However, Merz would like to go further by equipping Kyiv with Taurus missiles, a step Scholz fears could drag Germany into direct confrontation with Russia.

By contrast, the far-right Alternative for Germany (AfD), currently in second place after the conservatives in the opinion polls, wants an end to weapons deliveries to Ukraine and a resumption of good relations with Moscow.

Migration is another hot button issue.

Germany, which offered a warm welcome to Syrian and other refugees during the 2015 migrant crisis, has since hardened its stance and this year reintroduced border checks.

Merz has pushed for migrants to be turned away at Germany’s borders and wants a third-party country to process asylum claims.