Germany's parliament approved on Thursday the nation's first annual budget since sweeping reforms to loosen fiscal rules were passed earlier this year, securing record investments to revive the economy while committing to an increase in defence spending.

The 2025 budget allows for total investment of almost 116 billion euros ($136.94 billion), made possible thanks to a 500-billion-euro infrastructure fund and an exemption from debt rules for defence spending approved in March.

"It is a huge paradigm shift in German fiscal policy," Finance Minister Lars Klingbeil told lawmakers ahead of the vote in the Bundestag, Germany's lower house of parliament.

BOOSTING THE ECONOMY, BOLSTERING DEFENCE

Germany has thrown off decades of fiscal conservatism in the hope that public investment can kickstart the lagging economy, while a boosted defence budget aims to secure future military support for Ukraine and meet more ambitious spending targets for NATO allies.

Under pressure from U.S. President Donald Trump to become more self-reliant in the wake of Russia's invasion of Ukraine, NATO leaders agreed in June to up the defence alliance's spending target to 3.5% of each member's GDP from a previous 2%.

LOOMING BUDGETS GAPS, DIFFICULT DISCUSSIONS

With the 2025 plan secure, the focus of new Chancellor Friedrich Merz's coalition government shifts to budgets for the coming years, with difficult discussions ahead as Merz's conservatives push for savings in welfare, prompting pushback from their Social Democrat partners.

The coalition currently faces a 30-billion-euro hole in its financial plan for 2027.

"We will have to deal with huge challenges there," Klingbeil said, adding, however, that he was confident a solution would be found.

Parliament is set to begin debating the draft 2026 budget next week, with final approval expected in November.

Copied