Milei from Argentina versus Merz: How the "crazy economist" embarrasses the German Chancellor

Despite sharp criticism: Argentina's economic experiment delivers surprising figures

State dismantling or perpetual crisis: What Germany can learn from the Argentinian economic miracle

When Friedrich Merz launched a scathing attack on Argentine President Javier Milei on German television at the end of 2024, the roles seemed clearly defined: on one side, the respectable German politician defending the debt brake; on the other, the "mad economist" allegedly driving his country to ruin. Today, a year and a half later, a sober look at the bare facts reveals a completely different reality. While Argentina, after an unprecedented radical fiscal reform, is recording a budget surplus for the first time in over a decade, breaking its hyperinflation and reporting economic growth once again, Germany remains mired in stagnation.

Under Chancellor Friedrich Merz, the government spending ratio was driven up, the public sector continues to grow unchecked, and the once vehemently defended debt brake was effectively circumvented by a €500 billion special fund. This comprehensive systemic comparison ruthlessly reveals what happens when a politician actually delivers on their radical promises – and what happens when they don't. It provides deep insights into a real-world economic laboratory and poses the uncomfortable question: Which economic risk is actually greater in the long run?

The starting point: A politician loses his temper

In December 2024, the ARD talk show "Maischberger" provided a revealing snapshot of the times. The then-lead candidate of the CDU/CSU, Friedrich Merz, confronted with the question of whether Germany should embrace a more market-oriented economy modeled on that of Argentinian President Javier Milei, reacted with unusual sharpness. Merz declared that Milei was "ruining the country" and "treading on the people." In the same broadcast, he defended the debt brake and promised the abolition of the basic income as a central element of his reform agenda.

Today, a year and a half later, a sober assessment can be made. Argentina, largely written off by international economists and Western media, is experiencing economic growth, falling inflation, and a significantly reduced poverty rate. Germany, on the other hand, is struggling with a stagnant economy, rising national debt, and a public sector that continues to expand despite all promises of reform. The debt brake was not upheld but rather weakened by an amendment to the Basic Law and effectively circumvented by a €500 billion special fund. The basic income guarantee was not abolished.

Argentina's starting point: A country on the brink

To understand Milei's policies, the historical context is essential. When Milei took office in December 2023, Argentina's economy was in deep decline. The annual inflation rate was over 276 percent, among the highest in the world. Nearly 53 percent of the population lived below the poverty line. For years, the state had accumulated a chronic budget deficit, used the central bank to finance government spending, built an oversized bureaucracy, and established a far-reaching system of subsidies and capital controls that systematically stifled the country's economic growth. Argentina was the global economic prime example of how a resource-rich nation could be driven to ruin by decades of interventionist policies.

Milei was never a conventional politician. As a libertarian economist who openly invoked Friedrich von Hayek and Milton Friedman, he assumed the presidency with a decidedly ideological program: radical reduction of government, fiscal discipline bordering on obsession, and a fundamental rejection of government deficit financing. His credo, known as "No hay plata" – there is no money – was not populist rhetoric, but a guiding principle.

The dismantling of the state apparatus

Immediately after taking office, Milei began downsizing the state. The number of ministries was halved from 18 to an initial 8; independent ministries for labor, health, education, culture, and the environment were abolished or integrated into other departments. Subsidies for electricity, water, gas, and public transportation were drastically cut. State construction projects were halted, temporary contracts were not renewed, and permanent positions were eliminated.

Public sector job cuts are perhaps the most tangible single measure implemented by the Milei government. As early as April 2024, the government had already laid off approximately 15,000 civil servants. By April 2025, according to the Ministry of Regulatory Reduction and Public Sector Transformation, a total of 47,925 positions had been eliminated from the state budget. In 2025 alone, nearly 22,000 more public sector employees lost their jobs. According to official calculations, these measures have generated cumulative savings of around €2.44 billion, calculated through salary reductions and indirect costs. Milei himself emphasized that the job cuts were a "necessary measure" to strengthen the economy, as the public sector—measured against its potential for value creation—represents unproductive employment.

These cuts triggered significant social tensions. Unions called for protests, leading to nationwide demonstrations and strikes, with the Argentine CGT repeatedly mobilizing its members. Public universities, in particular, were at the center of the conflict. According to union figures, professors suffered average real wage losses of 34 percent during Milei's tenure, several faculties went on strike, and there were complaints of an exodus of faculty to private institutions. The social collateral damage of the reforms was real and immediately noticeable—of that there can be no serious doubt.

For the first time in a generation: budget surplus

The core fiscal outcome of Milei's policies is historically remarkable. Argentina achieved its first budget surplus in over a decade in 2024 – according to other calculations, the first in over 123 years. Milei himself commented on the first primary surplus of a quarter, saying: "We have made the impossible possible. This budget surplus is the guarantee that we will leave the inflation hell in Argentina behind us."

The structural goal of not spending more than it earns thus became politically tangible for the first time. In December 2025, the Argentine parliament passed a budget proposed by Milei for the first time with a clear congressional majority – 132 votes in favor and 97 against in the Chamber of Deputies. The new budget includes expenditures of approximately US$102 billion; for 2026, the government continues to project a balanced budget, GDP growth of around five percent, and an inflation rate of 10.1 percent.

Inflation: From hyperinflationary country to relative stabilization

The development of the inflation rate is the most statistically impressive achievement of the Milei administration. When he took office, the monthly inflation rate was around 25.5 percent – ​​an apocalyptic figure on an annual basis. By the end of 2025, the annual inflation rate had fallen to 31.5 percent – ​​the lowest figure in eight years. In April 2024, just a few months after Milei took office, the annual inflation rate had still been almost 300 percent.

The mechanisms behind this decline are analytically well understood. Milei instructed the central bank to stop printing new pesos, thereby halting monetary financing of the government and depriving inflation of its primary driver. Simultaneously, fiscal consolidation prevented the government from continuing to be financed through money supply growth. The government attributed the decline to a combination of fiscal consolidation, restrictive monetary policy, and the central bank's recapitalization. Nevertheless, at 31.5 percent, inflation remains far from normal. Critics point out that the monthly inflation rate rose slightly again to 2.8 percent in December 2025, and the annual curve has shown no significant further decline since spring 2025.

Poverty rate: Decline with limitations

The decline in the poverty rate is the most politically contentious aspect of Milei's record. According to the state statistics agency INDEC, poverty figures officially fell from around 53 percent when Milei took office to 31.6 percent by mid-2025. This represents a decrease of approximately 15 percentage points within twelve months. However, according to the independent Catholic University of Argentina, the poverty rate, at 36 percent, was the lowest it has been since 2018. This is estimated to have lifted approximately ten million Argentinians out of poverty.

These figures, however, should be interpreted with several caveats. INDEC staff themselves have publicly criticized the measurement methodology and rejected the latest poverty measurements. The Social Debt Observatory of the Catholic University of Argentina (UCA) confirmed that the measured decline in poverty could be "overrepresented" and "inaccurate." A key structural problem is the informal sector, which comprises nearly half of Argentina's working population. This sector is not fully captured by standard measurements. Furthermore, the number of homeless people in Buenos Aires alone has increased since 2024, and social programs, soup kitchens, and healthcare have been cut to an extent that is not immediately reflected in traditional poverty statistics. The decline in measured poverty is real, but its depth and sustainability are disputed.

It is undisputed, however, that the essential mechanism behind the decline in poverty is the decline in inflation itself. When wages are paid in a more stable currency and monthly inflation falls, purchasing power automatically increases – even without wage increases. Real wages in Argentina did indeed rise under Milei because inflation fell faster than nominal wages.

Economic growth: Recovery after deep contraction

The picture of Argentine economic growth is complex and cannot be interpreted without considering the base effect. In 2024, the Argentine economy initially contracted by around 1.3 percent. The cuts particularly affected domestic demand: subsidy reductions, layoffs, and losses in purchasing power initially led to a decline in demand. Gross fixed capital formation collapsed by 17.2 percent in 2024 – a dramatic setback.

The recovery followed in 2025. According to the state statistics agency INDEC, the Argentine economy grew by 4.4 percent. The International Monetary Fund (IMF) forecasts growth of around four percent for both 2026 and 2027. The main drivers of this growth were agriculture and forestry, mining, and financial services. The commodities sector is experiencing a boom, particularly in copper mining, and energy exports rose by 13 percent in the first ten months of 2025. However, critics who emphasize structural weaknesses point out that capacity utilization in Argentine industry was only 53.8 percent in December 2025 – significantly below the 2023 level of 65.6 percent. This suggests that GDP growth is not entirely attributable to the industrial upswing, but rather to a considerable extent to the statistical base effect of the sharp downturn in 2024.

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Germany: A government spending ratio exceeding 50 percent

The picture in Germany could hardly be more contrasting. The government spending ratio – that is, the ratio of total government spending to gross domestic product – stood at 50.3 percent in 2025, exceeding the symbolic 50 percent mark for the first time since the COVID-19 years of 2020 and 2021. This means that more than half of every euro earned in Germany flows into government hands. By comparison, this ratio is 46.9 percent in the United Kingdom, 41.3 percent in Japan, and 39.6 percent in the United States.

The public sector continued its steady growth. Around 5.4 million people were employed in the public sector in mid-2024 – 95,900 more than the previous year, an increase of 1.8 percent. This means that twelve percent of all employed people in Germany worked in the public sector. The figures rose particularly sharply in schools, universities, and daycare centers, which is partly justifiable, but does not change the structural picture: Germany is expanding its public sector, not shrinking it.

Debt: New records with pleasing regularity

Germany's public debt is a data point that speaks for itself. In the fourth quarter of 2025, public debt rose to €2,661.5 billion – an increase of €151 billion compared to the beginning of 2025 alone. The Bundesbank puts the increase in German national debt for the entire year of 2025 at €144 billion, totaling €2.84 trillion. The federal government, including its extra-budgetary funds, contributed the lion's share with a debt increase of €107 billion.

According to the Federal Statistical Office, the overall government budget deficit for 2025 is projected at €107 billion, corresponding to a deficit ratio of 2.4 percent of GDP. Net borrowing by the federal budget alone amounted to €66.9 billion in preliminary figures – a result hailed as a success, as it was €14.9 billion below initial expectations. Finance Minister Klingbeil nevertheless urged faster investment and acknowledged that the low level of spending was also due to the sluggish implementation of government projects.

Added to this is the structural peculiarity of Germany's debt situation: In March 2025, the still-outgoing 20th Bundestag, in a controversial special session shortly before the new parliament convened, passed an amendment to the Basic Law that enshrined a special fund of €500 billion for infrastructure and climate protection outside the debt brake. The debt brake, which Merz had publicly defended as recently as December 2024, was thus not abolished, but rather circumvented by an instrument with a comparable effect. In 2025 alone, €500 billion from this new special fund flowed into the budget outside the existing debt rules.

Economic growth: A systemic comparison of the figures

indicator	Argentina 2025	Germany 2025
Real GDP growth	4,4%	0,2%
Annual inflation rate	31,5%	~2,0%
poverty rate	~31–36%	~14% (Eurostat)
Government spending quota	declining (target: zero deficit)	50,3%
Public service	drastic job cuts	95,900 jobs
National debt	Budget surplus achieved	144 billion euros

In 2025, Argentina will experience real GDP growth of 4.4%, while Germany will grow by only 0.2%. The annual inflation rate in Argentina will be 31.5%, compared to approximately 2.0% in Germany. The poverty rate in Argentina is estimated at around 31–36%, while in Germany it is approximately 14% (Eurostat). Argentina's government spending as a percentage of GDP is decreasing with the goal of a balanced budget; in Germany, it is 50.3%. Argentina is implementing drastic job cuts in the public sector, while Germany is adding 95,900 positions. Argentina will achieve a budget surplus, while Germany's national debt will increase by €144 billion. This comparison is not a direct apples-to-apples comparison, as both countries have different economic structures, institutions, and social safety nets; nevertheless, it illustrates differing economic policy choices and their short-term effects.

The Merz balance sheet: Promises versus reality

Friedrich Merz assumed the office of Chancellor in February 2025 following the CDU/CSU's election victory. In December 2024, while still leader of the opposition, he had sharply criticized Milei, defended the debt brake, and promised to end the basic income guarantee. The reality of his time in office deviates considerably from these promises.

The debt brake, the core of his reform rhetoric at the time, was effectively supplemented by the €500 billion special fund, operating outside the regular debt regulations, as part of the constitutional amendment of March 2025. The basic income, the abolition of which the CDU had championed as a key demand, was blocked by its coalition partner, the SPD, and Social Affairs Minister Bärbel Bas. The federal government gradually lowered its growth forecast for 2025 – from an initially projected 1.1 percent to a final 0.0 percent, indicating stagnation. For 2026, the federal government anticipates growth of only one percent.

The ZEW Institute predicted average economic growth of just 0.1 percent for Germany in 2025; around 30 percent of the financial market experts surveyed expected a third consecutive year of recession. The Federal Statistical Office ultimately reported a GDP increase of 0.2 percent for 2025 – after two consecutive years of recession. The manufacturing sector recorded its third consecutive decline, and the construction industry shrank by 3.6 percent. Economic growth was primarily driven by private and government consumption – neither of which provide a robust foundation for a sustainable recovery.

Critical appraisal: What comparison can and cannot achieve

A serious economic analysis cannot sell the Milei-Merz comparison as clear proof of the superiority of the libertarian model – that would be methodologically dishonest.

Argentina and Germany are in fundamentally different economic contexts. Argentina emerged from hyperinflation, a collapsed public finance, and a dysfunctional subsidy system. Given this situation, a drastic fiscal shock is an economically coherent, albeit socially painful, approach – it addresses the immediate cause of the crisis. Germany is not grappling with hyperinflation, but rather with a loss of competitiveness, weak investment, high energy costs, and demographic challenges. Blindly copying the Milei approach would not only be politically unrealistic but also economically questionable.

Furthermore, there are significant question marks surrounding Argentina's own performance data. The poverty statistics are methodologically flawed. The informal sector, which comprises almost half of Argentina's working population, is inadequately captured by official measurements. GDP growth in 2025 benefits considerably from the statistical base effect of the 2024 recession. A capacity utilization rate of 53.8 percent signals structural weakness, not an industrial recovery. And inflation, at 31.5 percent, is still far above what anyone would consider stable.

At the same time, it would be intellectually dishonest to categorically ignore Milei's fiscal consolidation. Argentina has indeed achieved a budget surplus, broken monetary inflation, and shrunk a state that had grown for decades without being economically productive. These are empirically proven achievements—even if the social costs were substantial and sustainability is not yet guaranteed.

What Germany can learn from the Argentinian laboratory

Beyond the direct comparison, the Argentine case offers some structural lessons that are relevant to the German economic policy debate, even if the contexts are different.

First: Fiscal consolidation is possible – even politically. A country once considered economically unreformable achieved a budget surplus within two years. This refutes the argument that structural cuts are politically impossible. Reforms can gain acceptance when the population clearly recognizes the link between government failure and economic hardship – and perceives the pain of having no alternative but to remain unreformed as even greater.

Secondly, the public sector is not an engine of growth. The fact that Germany expanded its public sector to 5.4 million employees while the economy stagnated illustrates a structural imbalance. This does not mean that public employment is inherently worthless – in education, for example, Germany has a real need to catch up. However, it does mean that employment growth in the public sector without corresponding productive output does not create a sustainable economic foundation.

Thirdly: A government spending ratio of over 50 percent is not a goal, but a warning signal. In 2025, for the first time since the COVID-19 pandemic, Germany again channeled more than half of its GDP into public hands. This is a figure that, in the long term, stifles private investment and keeps the tax and contribution burden at a level that is detrimental to competitiveness.

Fourth: Debt postpones problems, it doesn't solve them. The €500 billion special debt may provide short-term investment stimulus. However, it doesn't change the structural question of whether the German state operates more efficiently and productively than the private sector – and historical experience with large public infrastructure programs is mixed in this regard.

The real dilemma: Short-term pain versus long-term pressure

The core political-economic question raised by this comparison is not ideological, but empirical: Which type of fiscal risk is greater in the long run? Short-term, harsh cuts that curb consumption and employment, create social tensions, and are politically unpopular? Or a permanently growing state with ever-increasing debt, a rising public spending ratio, and structural weakness in growth?

Argentina has chosen the first path – with considerable social costs and noticeable early successes, the sustainability of which remains unproven. Germany consistently chooses the second path. The consequences of this path – gradual erosion of competitiveness, rising interest burdens on growing debt, demographically driven pressure on social systems – are less dramatic and less visible in the media than Argentine poverty data. But they are accumulating.

Friedrich Merz has not retracted his criticism of Milei since becoming Chancellor. The federal government refused to comment on his earlier statements. This is politically understandable, but analytically inadequate. Anyone who, as the opposition, promises structural reforms and then, as the government, incurs debt, expands bureaucracy, and waits for growth impulses supposedly coming from public investment owes their voters an uncomfortable explanation.

Concluding remark: What a real laboratory experiment teaches

Real-world economic policy experiments are rare and never ethically unproblematic. What is happening in Argentina is both: a genuine experiment with real people and one of the few opportunities to observe the effects of radical fiscal consolidation in a modern state. The data show that Milei's policies have so far failed to produce what Merz predicted—no national ruin, no mass impoverishment, no collapsed economy. On the contrary: there is growth, falling inflation, and statistically declining poverty.

But the experiment is not over. The deep structural questions – industrial capacity, the informal sector, the sustainability of fiscal stabilization without external shocks, and the social cohesion of a deeply divided society – remain open. Milei kept his word; the data confirms this. Whether the country will benefit in the long term will only become clear in the coming years. However, one thing is already certain: the claim that consistent fiscal consolidation would ruin a country per se has not been borne out by the empirical evidence of the last two years.

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