Europe Reaches for Growth as Berlin Passes a Reform Package and Brussels Fights Over Its Budget

Germany's governing coalition agreed a package of measures aimed at lifting economic growth, as German Chancellor Friedrich Merz faces pressure to deliver results. Deutsche Welle reported that the coalition had cleared the reform package amid mounting demands for the continent's largest economy to return to growth after a prolonged period of weakness.

The push comes as the European Union negotiates its next long-term budget, a process that is exposing divisions between richer and poorer members. Bulgaria's deputy prime minister, Atanas Pekanov, told Euronews that the bloc must retain policies like cohesion funding, which channels money to less-developed regions, and pressed for a deal by the end of the year even as he acknowledged talks would take months.

The two developments frame the same challenge. Europe is trying to raise its growth rate and finance shared priorities at a time of higher defense spending, an aging population and slow productivity gains. Berlin's answer is domestic reform, while the budget dispute is about how much redistribution the bloc can still afford.

From a sound-money perspective, the risk is that growth packages rely on new spending and borrowing rather than on structural change. Fiscal stimulus can raise measured activity in the short run while adding to the debt that a slower-growing, higher-rate Europe will have to service later.