In Germany, it’s always a feast or a famine. After years of dry-bread balanced budgets and thin investment gruel, the government of Chancellor Friedrich Merz has embraced jam-for-all politics.
On Tuesday, his federal finance minister Lars Klingbeil presented a draft double budget for 2025-2026 with investment worth €115.7 billion alone this year – up 55 per cent on 2024.
The spending surge is thanks largely to a special infrastructure fund agreed by the future coalition partners just after February’s federal election.
That fund’s capital, borrowed outside the balance sheet and European deficit rules, is designed to be spent over the coming decade. About €500 billion will be available to repair and replace crumbling infrastructure, neglected in the Merkel years.
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Another arm of the fund comprises an effective blank cheque for boosting German defence capabilities in line with Nato commitments.
Even without the off-balance-sheet trickery, Germany is set to borrow €82 billion this year: no small sum given the country’s economy is in its third consecutive year of recession.
The extra debt won’t thrill the European Commission or Eurogroup head Paschal Donohoe. But Germany still remains well below debt-to-GDP ratios of the UK or US and, so far at least, investors seem sanguine about the extra borrowing if it ends the fiscal famine and stimulates growth.
Less impressed are the German voters conditioned in the past decade to believe that all borrowing is bad news. Particularly gloomy are centre-right Christian Democratic Union (CDU) voters, who were promised the exact opposite of what they are now getting.
Opposition politicians, who backed changing debt rules to enable the investment fund in March, now accuse Klingbeil of breaking his word. They say he has shunted planned investments in roads, railways and even defence into the investment fund to create fiscal space for expensive clientelist welfare gifts.
On Tuesday, a leading CDU ally of Merz conceded that the hard work of consolidation and reform – in particular of Germany’s unsustainable pension system – lies ahead.
After February’s snap election he said Tuesday’s budget, seven months late, was about “buying time”.
In Berlin’s new jam factory, time really is money.
