BERLIN: The German government is working on a draft budget for 2027 which includes total borrowing of 196.5 billion euros ($229.73 billion) as it aims to bolster infrastructure and defense, sources told Reuters on Tuesday. This compares with 50.5 billion euros in 2024 under the previous government, before Europe’s biggest economy threw off decades of fiscal conservatism last year in a bid to revive growth, modernize crumbling infrastructure and scale up military spending.
DEFENCE IN FOCUS
The budget also features a strong commitment to defense spending, which is set to climb to 105.8 billion euros in 2027 from 82.7 billion euros in 2026 in the core budget, the sources said.
Including the special fund for defense and funds for Ukraine, total defense spending is planned to reach 144.9 billion euros in 2027.
A further increase to 179.9 billion euros in the core budget is planned by 2030, the sources said.
This, together with other government defense expenditure, results in a NATO quota of 3.1 percent in 2027, which is expected to reach 3.7 percent of GDP by 2030, the sources said. NATO leaders agreed at a summit last year to spend 5 percent of GDP on defense and related investments by 2035.
Germany will continue supporting Ukraine with 11.6 billion euros in 2027 and 8.5 billion euros per year between 2028 and 2030.
SPENDING SURGE
The 2027 draft budget, part of a medium-term financial framework extending to 2029, allocates total spending of 543.3 billion euros, sources said, 3.6 percent more than in the previous year.
The spending surge is supported by a 500 billion euro infrastructure fund and an exemption from debt rules for defense spending approved last year.
Germany’s special infrastructure and climate fund will focus primarily on transport, digitalization and hospital infrastructure, underscoring where Berlin sees the most urgent need to modernize Europe’s largest economy after years of underinvestment. New borrowing in the core budget is expected to rise to 110.8 billion euros, with 58.2 billion euros borrowed on top through the infrastructure fund and 27.5 billion euros through the special fund for defense approved by former chancellor Olaf Scholz after Russia’s invasion of Ukraine.
Special funds are excluded from Germany’s “debt brake” that limits borrowing to 0.35 percent of GDP. Including the special funds, total investment will be at 118.5 billion euros in the 2027 draft budget, 37.6 billion euros more than in the fiscal plan before the spending spree was approved.
Following its presentation on Wednesday and cabinet approval in July, budget discussions will commence in parliament in September, with final approval anticipated by year’s end.
