Germany to prioritise railway overhaul in €500bn infrastructure drive

Germany to prioritise railway overhaul in €500bn infrastructure drive

Germany will make its struggling railway network the first priority in deploying its new €500bn infrastructure fund, aiming to kick-start growth and deliver visible improvements to citizens’ daily lives after years of economic stagnation, the Financial Times reported.

Vice-chancellor and finance minister Lars Klingbeil is preparing to inject up to €10.5bn into upgrading train services this year, giving state-owned Deutsche Bahn the largest share of €22bn earmarked for infrastructure investment in 2025, according to officials familiar with the plans.

Other planned allocations include €3bn to expand broadband coverage and €1bn to modernise bridges. From 2026, annual infrastructure spending from the fund is expected to rise to as much as €35bn, continuing through 2029.

Cornerstone of economic revival plan

The fund is a centrepiece of Chancellor Friedrich Merz’s strategy to lift Germany out of its three-year economic malaise. The government also recently approved €46bn in corporate tax breaks to stimulate private investment during its 2025-2029 term.

Alongside major defence spending commitments, the infrastructure drive is intended to modernise Germany’s ageing roads, bridges, hospitals and schools, while delivering tangible benefits to the public. The fund’s initial allocations are set to be approved in a June 24 cabinet meeting, alongside the long-delayed 2025 federal budget.

Following the collapse of Olaf Scholz’s coalition over funding disputes last year, Merz’s new government relaxed Germany’s constitutional debt cap to enable large-scale borrowing for defence and infrastructure.

In the short term, Berlin is prioritising rapid deployment of funds, with Deutsche Bahn seen as best positioned to absorb immediate investments thanks to an existing pipeline of projects.

Railways seen as political priority

“The big question is: how quickly can we put this money to work — and Deutsche Bahn is the obvious place to start,” said Henning Meyer, professor of public policy at Tübingen University. He noted that the railway operator already had detailed investment plans ready.

Deutsche Bahn has identified €53bn in needed investments, with its chronic delays and deteriorating service levels having become a symbol of underinvestment in Europe’s largest economy.

A finance ministry spokesperson declined to detail specific fund allocations but confirmed plans to “rapidly implement investments in Germany and thus quickly create new jobs and modern infrastructure.”

Deutsche Bahn declined to comment.

Political implications

Beyond economic aims, the government hopes that visibly improving rail services will help shift Germany’s political mood. Frustration over infrastructure shortcomings has contributed to the rise of the far-right Alternative for Germany (AfD), now the second-largest party in the Bundestag.

Meyer said that while rail upgrades would cause short-term disruptions, they offer a rare opportunity for the public to see direct improvement in their everyday lives.

The 46-year-old Klingbeil, who also co-leads the Social Democratic Party (SPD), is betting that the infrastructure push can restore his party’s political standing before the next federal election in 2029. In February’s vote, the SPD suffered its worst result since the 19th century but emerged as the Christian Democrats’ only viable coalition partner after Merz ruled out an alliance with the AfD.

Klingbeil secured the €500bn fund — a key SPD campaign promise — by agreeing to Merz’s plan to relax the debt brake for defence.

As Germany prepares to roll out its most ambitious public investment programme in decades, the state of its trains — long a source of frustration — may soon become the barometer of whether that effort succeeds.