Germany approves 2026 draft budget with record investment and triple borrowing

Germany’s cabinet has approved a draft 2026 budget on Wednesday featuring record investments and a borrowing level nearly three times higher than last year’s, aiming to strengthen infrastructure and defence while efforts to revive growth.

The country’s borrowing will rise to €174.3 billion ($200 billion) in 2026, up from €50.5 billion ($57.7 billion) in 2024 under the previous government, while investments will reach an unprecedented €126.7 billion ($144.9 billion).

Finance Minister Lars Klingbeil said this shift is important. “It is right that we invest in our security and that we address our investment backlog that has built up over many years.”

The draft budget is part of a medium-term plan through 2029, with total spending of €520.5 billion ($595.6 billion). Interest costs are expected to rise to €66.5 billion ($76 billion) by 2029, above earlier forecasts.

Despite strong investment, Germany faces a €172 billion ($196.7 billion) deficit from 2027 to 2029, prompting strict spending discipline across ministries to limit new expenses and reassess current budgets.

Klingbeil acknowledged the challenges ahead. “Everyone knew that things would get serious in 2027. That’s why I made it really clear in the cabinet, so that no one could say they didn’t know. Now it’s time for everyone to start saving properly.”

The investment increase is supported by a €500 billion ($572.3 billion) infrastructure fund and a March reform that exempts defence spending from Germany’s strict 'debt brake' rule, which caps borrowing at 0.35% of GDP.

Following cabinet approval, parliamentary discussions will begin at the end of September, with final budget approval expected by the end of the year.

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