Investments in focus: financing scope and EU challenges!

Investments in focus: financing scope and EU challenges!

The federal government's financial package is increasingly coming into focus, as the spring report from the economists provides a clear picture of the needs in German financial policy. It should be geared towards investment and growth in order to achieve long-term growth effects. A central goal is not to postpone the planned investments from the core budget, which requires extensive use of financial resources. There is currently considerable scope for cross-financing of up to 1.2% of gross domestic product (GDP), which corresponds to up to 50 billion euros annually, reports TradingView.

In this context, the debt brake, which was introduced in 2009, was also examined. This was based on a structural deficit of a maximum of 0.5% of GDP, but changes decided in March 2025 opened up an additional credit financing framework for Germany. This is particularly important as the debt ratio is expected to rise slightly to 63% by 2024 - a development that must be viewed in line with EU guidelines requiring an annual reduction of 0.5 percentage points. Similar to the beginning of the monetary union, there is a risk of conflicts with these requirements Economic service reported.

Investments and defense spending

A central issue is the threshold for defense spending in the amended Basic Law, which is 1% of GDP. However, this is considered too low as in the past more than 1% of GDP from the core budget was spent on defense. In order to meet current security requirements, a statutory minimum quota of at least 2% of GDP for defense spending in the core budget is recommended. In addition, an investment quota of at least 10% of the core budget should be set for the special fund for infrastructure and climate protection, with the aim of increasing this to 12%.

However, there are uncertainties regarding the compatibility of the financial package with EU fiscal rules. A strong focus on investment and structural reforms is considered essential to ensure compliance with these rules. A spending policy that is too consumer-oriented carries the risk of increasing the debt ratio and violating EU requirements. Due to the changing security situation, the Bundestag has pushed for higher defense spending, although this is not fully covered in the current financial planning.

Challenges caused by EU regulations

The challenge remains that the EU requirements, which require a reduction in the debt ratio, are not easy to comply with. In order to meet the targets by 2028, annual consolidations of around 25 billion euros or higher economic growth would be necessary. It is also important that the Stability Council has not adequately monitored compliance with EU requirements in the past. Against this background, a new regulation of the Budget Principles Act is sought in order to improve budget monitoring and ensure that the new credit leeway is used in accordance with EU requirements.