Reform and election risk.
The supply-side test the money cannot pass alone.

The Merz government has completed the easy half of its economic agenda: loosening the debt brake and deploying money. That was politically straightforward because spending creates winners and defers the bill. The hard half - structural reform to raise the economy's supply-side potential - remains almost entirely undone, and it is the half that actually determines whether the fiscal experiment works. An economy with a trend growth rate of 0.5 to 0.75 percent cannot be permanently fixed by demand stimulus; it needs higher productive capacity, which comes from reform, not from spending alone.

This is the central tension of the legislature. The government has the mandate and the resources, but it is increasingly short of the one thing reform requires: political capital. A coalition polling behind an insurgent is a coalition that hoards capital rather than spends it on contentious change.

The reform agenda is well understood and largely stalled. Energy: permanently lower industrial power costs beyond the temporary 2026-2028 subsidy, by accelerating grid build-out and renewables permitting. Permitting and bureaucracy: compress the years-long approval timelines that delay every infrastructure and industrial project. Labour and immigration: raise participation and manage the skilled-migration the shrinking workforce requires, a politically toxic subject the AfD weaponises. Pensions: confront a system whose costs rise inexorably as the boomers retire, the third rail of German politics. Each of these would raise trend growth; each costs political capital; and the government has shown limited appetite for any of them.

The asymmetry between spending and reform is the heart of the matter. Spending the €500 billion fund creates visible winners - construction firms, defence contractors, regions receiving investment - and the costs are diffuse and deferred onto future taxpayers. Reform reverses that calculus: the costs are concentrated and immediate (pensioners facing lower indexation, workers facing later retirement, regions facing renewables they did not want) while the benefits are diffuse and deferred. A government with abundant political capital spends it on reform; a government short of capital spends money instead. Merz's coalition has the money and lacks the capital, which biases it toward the spending half of the agenda and away from the reform half - precisely the configuration the ifo critique warns produces debt without growth.

The reform window is bounded by the electoral clock. The next federal election is scheduled for 2029, and the political logic of reform is that it must be done early in a term, when the pain has time to fade before voters judge it. Each quarter that passes without structural reform narrows the window and raises the odds that the legislature ends with money spent and capacity unraised. If the 2029 election arrives with a disappointing recovery and an undone reform agenda, it becomes a referendum on the entire approach - and the beneficiary is the party that has spent the term arguing the establishment wasted the money. The election risk and the reform risk are therefore the same risk, viewed from different ends of the term.