German Finance Minister Lars Klinkbier presented the 2027 draft budget to the Bundestag on September 8th, arguing that new borrowing is essential to strengthen the nation's defense capabilities and infrastructure. The plan outlines federal core budget expenditures of €555.4 billion, with net borrowing set at €118.7 billion, while separate financing arrangements exist for the infrastructure and Bundeswehr special funds. The proposal received cabinet approval in July and now moves to parliamentary review.

Security spending drives higher borrowing

During the parliamentary debate, Klinkbier stressed that reinforcing the Bundeswehr and bolstering defenses against cyberattacks requires fresh financial resources. He likened the idea of securing defense without increasing debt to attempting a lunar mission without a rocket, emphasizing that the expenditures are aimed at safeguarding Germany's liberty and security. According to the Finance Ministry's draft, the defense budget for 2027 will reach €109.7 billion, a significant rise from €82.7 billion in 2026. Additionally, the Bundeswehr special fund plans to allocate €30 billion in spending. It is important to note that the annual defense budget and the special fund operate under separate accounts, meaning neither figure alone represents Germany's total defense expenditure. Net borrowing in the core budget is projected to climb to €118.7 billion from €98 billion in 2026.

Infrastructure investment relies on special funds

The German government has announced plans to channel approximately €118 billion into investments for 2027, targeting modernization, employment, and innovation. This investment volume includes arrangements outside the core budget and should not be directly equated with investment categories within the federal core budget. The special funds bear a portion of the infrastructure expenditure. Under the Finance Ministry's July plan, the fund will direct €17.7 billion to transport infrastructure, €9 billion to digitalization, and €3.5 billion to hospital infrastructure in 2027. In his September 8th address, Klinkbier linked infrastructure renewal to economic resilience, noting that international conflicts are disrupting supply chains and driving up fossil fuel prices, which underscores the need for Germany to reduce dependencies and improve conditions for long-term investment.

Spending growth meets fiscal constraints

Despite the government's push for expanded investment and security spending, fiscal performance continues to show strain. The Finance Ministry's August monthly report reveals that federal budget expenditures for the first seven months of 2026 reached €289.3 billion, a 4.4% year-on-year increase, while revenue excluding borrowing items stood at €237.3 billion, down 2.5% year-on-year, resulting in a budget deficit of €52 billion. During the same period, investment spending, measured on a budget accounting basis, grew by 9.9%, but the ministry noted that this increase was primarily driven by higher loan disbursements, including funds provided to employment and social insurance institutions. Fixed asset investment actually declined by €100 million year-on-year. Consequently, growth in budgeted investment outlays cannot be directly interpreted as a rise in physical infrastructure construction. The parliamentary fiscal plan further indicates that interest payments on the core budget are expected to surge from €41.9 billion in 2027 to €80.7 billion by 2030, a trend the government attributes mainly to an expanding debt load and rising yields on federal securities.