BERLIN — German Finance Minister Lars Klingbeil told lawmakers on Tuesday that the German government planned to invest a record €126.7 billion in 2026, but warned of the need to rein in budget spending going forward.
“We are investing heavily in the future of the country,” Klingbeil said while introducing next year’s spending plan, calling the draft budget evidence of his government’s “fiscal policy paradigm shift.” At the same time, he warned, the government would need to make tough decisions to find new savings to plug a €30 billion hole in its budget for the following year.
Klingbeil admitted that the political message — record spending amid the need for fiscal consolidation — seemed contradictory.
“Of course, as I’m sure is true for all of us, I have noticed time and again in conversations over the past few weeks how difficult it is to explain to citizens that, on the one hand, we are investing heavily in the future of our country, but on the other hand, we are also required to make massive savings in the core budget. I can tell you that both are necessary. Both are essential. On the one hand, we are investing in the modernization of the state, and at the same time we have to get running costs under control.”
Most of the new investment planned for next year is coming out of special funds that are not part of Germany’s regular budget, including €49 billion from an infrastructure and climate fund, Klingbeil said. That fund was created as part of a historic package of constitutional spending reforms the German parliament passed back in March that included a loosening of Germany’s constitutional debt brake to unlock massive defense spending.
But those spending reforms did not fully do away with Germany’s debt brake — a constitutional provision that limits the federal government’s structural deficit to 0.35 percent of gross domestic product. Germany’s regular budgetary spending is still therefore subject to considerable fiscal restraints.
German Chancellor Friedrich Merz’s government will be forced to make tough spending decisions in the coming months to rein in regular spending at a time when Germany’s economy is struggling. GDP fell 0.3 percent in the second quarter of this year compared with the previous three months, completely reversing a first quarter gain and leaving GDP a meager 0.2 percent up on the year.
Klingbeil in his Bundestag speech said the German government had been forced to borrow extensively in recent years to overcome the Covid-19 pandemic, to bolster Germany’s defenses following Russia’s full-scale invasion of Ukraine and to handle the energy shock that came as a consequence of that war.
“The money that we all needed and from which we all benefited as a society must be repaid at some point,” said Klingbeil. “And for a long time, that point seemed very distant. But that point starts now.”
The post Germany’s Klingbeil announces record investment, but warns of belt-tightening ahead appeared first on Politico.
