The parliament of Germany on Thursday passed the country’s first-ever annual budget since broad reforms to relax fiscal rules were enacted in early this year, securing historic investments to spur the economy and pledge a rise in defense spending.
The 2025 budget provides room for overall investment of nearly 116 billion euros ($136.94 billion), enabled by a 500-billion-euro infrastructure fund and a rule exemption on debt for defence spending that was signed off on in March.
Finance Minister Lars Klingbeil called the budget a “massive paradigm shift in German fiscal policy”, addressing parliamentarians before the vote in the Bundestag, the lower chamber of Germany’s parliament.
Improving the Economy and Supporting Defense
Germany has shed years of budgetary thrift in the expectation that government spending will revive the sluggish economy, and an increased defence budget is intended to underwrite future military aid to Ukraine and achieve more ambitious expenditure goals for fellow NATO members.
Europe’s largest economy has been functioning on an interim budget this year after last November’s collapse of the previous ruling alliance, with no time to enact the 2025 spending outlines.
The budget core for the current year funds 502.5 billion euros of expenditure.
Adding investments from an infrastructure fund as well as another 100-billion-euro fund for defence introduced by former Chancellor Olaf Scholz after the Russia invasion of Ukraine, the budget size totals 591 billion euros.
Widening Budget Gaps and Challenging Conversations
The core budget projects borrowing of 81.8 billion euros in 2025.
Total borrowing comes to 143.2 billion euros with the addition of 37.2 billion euros from the special defence fund and 24.1 billion euros from the special infrastructure fund, said a finance ministry spokesperson.
Having secured the 2025 plan, attention now turns to budgets for future years for the coalition government headed by new Chancellor Friedrich Merz as his conservatives seek savings in welfare, only to receive resistance from their Social Democrat coalition partners.
The alliance is now facing a 30-billion-euro gap in its 2027 financial plan.
“We will have to cope with enormous difficulties there,” Klingbeil said, but also expressed confidence that a solution would be found.
Parliament will start debating the draft 2026 budget later this week, with the final vote due to take place in November.
