"Our country's investment backlog is huge," said Federal Finance Minister Lars Klingbeil (SPD) on Tuesday (July 8) when he presented his draft budget for the current year in the lower house of parliament, the Bundestag.

Dilapidated roads, collapsing bridges, school and university buildings in a state of disrepair, trains that are never on time, no nationwide internet access — all this is part of everyday life in Germany, Klingbeil said, promising that this would change soon.

U-turn in budgetary policy

Investment in infrastructure will play a prominent role in the coming years. For this year alone, €115 billion ($135 billion) has been earmarked in the draft budget. "We are investing more than ever before in the future viability of our country, and that is a good sign," Klingbeil told lawmakers.

"We want citizens to feel in their everyday lives that something is changing, that the swimming pool is getting new showers, that the rails are being renovated, the bridges are being stabilized, and the fiber optic cable is being laid," said Klingbeil, who is also vice-chancellor and co-chairman of the center-left Social Democratic Party (SPD).

'Investment Minister' Klingbeil

The finance minister has often said that his job is "investment minister." He says that renovating the country's infrastructure will also help revive its weak economy.

The new budget also foresees a massive increase in defense spending.

The new government's financial planning marks a turnaround in German budgetary policy. In November 2024, the previous three-way center-left government under Chancellor Olaf Scholz (SPD) collapsed due to a dispute over the financing of the budget. New elections were held in February 2025, and now the center-right bloc of the Christian Democratic Union (CDU) and, Christian Social Union (CSU) is governing with the SPD. The new coalition solved the problem of empty state coffers by taking out previously unimagined amounts of credit.

Even before they took office, the coalition partners got the Bundestag to pave the way for a gigantic financial package for the coming years with the consent of the environmentalist Green Party which is now in opposition: 500 billion euros can be taken out in additional debt for investment in the ailing infrastructure. The famous "debt brake" credit limit was lifted completely to increase Germany's defense capabilities.

The financial planning for this and the coming years shows concretely what this means. Expenditure of €503 billion is planned for 2025, of which around €143 billion will be financed from loans. Borrowing is set to increase further in the coming years. In total, new debt amounting to €847 billion is planned for the coming years.

Capable of deterrence and defense

The NATO countries have agreed to invest 5% of their economic output in defense in the medium term, of which 3.5% is to be traditional military spending, the rest is to go into infrastructure. Klingbeil wants to achieve this goal as quickly as possible.

According to his plans, the German defense budget will gradually more than double by 2029  to €152.8 billion to meet the 3.5% target. Germany must be "capable of deterrence and defense", Klingbeil said.

"This also resolves a conflict that has existed in our society for years," the Finance Minister told lawmakers in the Bundestag. Whether to invest in the Bundeswehr or industry, whether to help Ukraine or invest in climate protection are no longer conflicting interests. "I say very clearly here: we need to do it all."

Ballooning interest payments

The downside of the high level of new debt is an increase in the interest burden in the years ahead. For 2029, the Ministry of Finance is expecting an interest burden of almost €62 billion. Based on the federal government's financial planning, ten percent of the budget would have to be spent on interest in 2029.

To rein in the interest costs, savings will be necessary in the regular budget in the coming years. Consolidation is an integral part of his planning, according to Klingbeil. In addition, the €100 billion in special funds for the Bundeswehr, which were approved in 2022 following the Russian invasion of Ukraine, will be used up by 2027.

The share of defense spending in the normal budget will then increase significantly. This leaves little room for other expenditure.

Sharp criticism of this comes from the socialist Left Party opposition in the Bundestag. The people in the cities and municipalities "don't need tanks, they need functioning daycare centers, buses and an affordable energy transition," a party statement read.

Tough debates ahead

After the first debate on the budget for 2025, which will continue until Friday (July 11), the draft will go to the committees. This will be followed by a further debate and a vote in September.

Meanwhile, Finance Minister Lars Klingbeil is working on the draft for 2026, which he intends to present to the cabinet on July 30. This budget will also be debated in the Bundestag in September and is expected to be adopted at the end of November.

This article was originally written in German.

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