Germany announced a sweeping budget plan on Tuesday that aims to nearly double military spending and launch a €500 billion infrastructure drive, in what Finance Minister Lars Klingbeil called a “paradigm shift” in the country’s investment policy. The draft budget seeks to raise defence outlays to 3.5% of gross domestic product (GDP) by 2026, with an eye on reaching NATO’s proposed 5% target pushed by President Trump, the New York Times reported.
Defence spending takes priority
Of the €115.7 billion in new investments planned for this year, €62.4 billion will go toward military upgrades. For years, Germany had drawn criticism for underspending on defence, but growing Russian aggression and pressure from NATO allies have triggered a major course correction. The Bundeswehr, long plagued by equipment shortfalls, is expected to benefit significantly.
Chancellor Friedrich Merz’s cabinet approved the proposal, but it faces parliamentary approval in September. The plan includes sustained spending increases through 2029, aiming to meet NATO’s new threshold.
Big borrowing, political risks
Germany’s new strategy hinges on massive borrowing, challenging its constitutional debt brake. Critics warn of surging interest costs—set to double in the next four years—and note the plan echoes budget battles that collapsed the previous government. Still, Klingbeil defended the borrowing as vital to national competitiveness, saying Germany cannot afford broken schools, weak defence, and failing bridges.
A special €500 billion fund, spread over 12 years, will target infrastructure like roads, railways, and digital networks. In March, Merz also pushed a law allowing military and cybersecurity spending to exceed traditional limits, easing fiscal rules long sacrosanct in German politics.
Reactions and outlook
Initial signs of business optimism have emerged since Merz took office in May, with surveys forecasting at least 1% annual GDP growth by 2026. Still, economists like Berenberg Bank’s Salomon Fiedler caution that spending alone won’t fix Germany’s long-term structural challenges. Tax reform and deregulation, he argues, will be essential to sustain growth once the fiscal boost fades.
As NATO leaders meet in The Hague, Germany’s pivot marks a turning point: the country is shedding decades of fiscal restraint and military caution, stepping into a more assertive role in European security and economic recovery.
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