New Government to Invest Half Trillion in Germany
The new conservative-Social Democratic government under Chancellor Friedrich Merz plans to put hundreds of millions of euros into stimulating the economy and improving Germany’s infrastructure.
May 06, 2025
The conservative CDU-CSU and the Social Democratic Party (SPD) coalition is taking advantage of constitutional changes allowing the government a massive amount of additional credit for infrastructure and other investments in the coming years. Chancellor Friedrich Merz has placed the focus clearly on a landmark program of economic and business stimulus.
“The future government will be investing and reforming to ensure Germany remains stable and to make the country more secure and economically stronger,” Merz said when announcing the coalition deal with the Social Democrats. “Europe, too, can rely on Germany.”
The Merz government wants to use tax incentives and innovations to make Germany more competitive in terms of prices. The coalition has also pledged reductions in taxes, energy prices and government bureaucracy as well as increased digitalization and modernization of the state. And it’s promised a dramatic rise in defense investments.
Previously, the two chambers of the German parliament, the Bundestag and the Bundesrat, approved constitutional changes to give the government new flexibility in funding major projects. The state will now be permitted to raise a half trillion euros in off-budget funds in the next twelve years to overhaul infrastructure. EUR 100 billion of that money can be spent on climate-protection measures.
Defense spending has been exempted from limits on structural budget deficits to 0.35 percent of German GDP – the so-called debt brake. The new rules also lift a prohibition on the Federal Republic of Germany’s sixteen constituent regional states taking on new credit debt. In future the regional states will also be allowed to obtain loans up to 0.35 percent of national GDP. The World Bank estimated German GDP to be worth over USD 4.5 trillion in 2023, making it the third largest in the world.
“The package to increase Germany’s borrowing capacity is good news for the German economy,” said Robert Hermann, COO of Germany Trade & Invest, the country’s international business promotion agency. “The greater leeway concerning state credit will create business opportunities and will allow Germany to finance much-needed infrastructure and climate protection projects. This and the rest of the legislative action are indelible proof that the German state continues to function as Germans wait for a new government to take office.”
