The German cabinet approved a 2026 budget draft featuring €126.7 billion in planned investments while confronting an unresolved €172 billion funding gap through 2029, according to Euractiv.
Finance Minister Lars Klingbeil acknowledged the dilemma, stating that “this will be one of the biggest domestic challenges that we will have to overcome in the next 12 months.”
The projected shortfall exceeds earlier estimates by approximately €30 billion, casting uncertainty over Germany’s capacity to finance critical infrastructure and defence initiatives without deeper structural reforms.
Germany’s governing coalition had previously loosened constitutional borrowing restrictions, the “debt brake”, to accommodate urgent priorities. This enables record defence spending, set to rise by a third to €82.7 billion in 2026, alongside green transition investments.
However, long-term borrowing projections now indicate approximately €850 billion in cumulative debt through 2029. Recent decisions accelerating pension subsidies and compensating municipalities for revenue losses have unexpectedly widened the fiscal gap.
Klingbeil’s ministry established expert commissions to examine reforms to Germany’s social security systems, though specific measures remain undefined.
Meanwhile, critics argue temporary debt rule adjustments cannot substitute for fundamental fiscal restructuring. Veronika Grimm, an economist advising the Christian Democrat-led economy ministry, contends:
Instead of reforming the debt brake, we urgently need structural reforms to reduce the funding gap.
The budget’s approval follows earlier coalition instability triggered by similar fiscal constraints. While prioritising military readiness and infrastructure renewal addresses longstanding neglect, the unresolved funding challenge threatens Germany’s capacity to sustain these commitments.
Klingbeil’s department now faces twelve months of complex negotiations to reconcile ambitious investment goals with fiscal sustainability, a balancing act that could define the coalition’s political future.
