German budget draft, over 203 billion euros in borrowing/ Defense spending increases to 109.8 billion euros in 2027
Germany plans to increase borrowing by 2027 to more than 203 billion euros, according to a draft budget, a larger increase than previously signaled. Berlin is boosting defense spending in a bid to cushion its economy from war-related energy shocks and years of underinvestment.
Borrowing has increased from the 196.5 billion euros signaled in April and far more than the 50.5 billion euros in 2024, before Germany abandoned decades of fiscal conservatism.
The draft budget assumes that the conflict in the Middle East will ease over the summer, but warns that if the Strait of Hormuz or oil production capacities remain disrupted for longer, there will be "far-reaching consequences" for the German economy.
The 2027 draft budget, part of a medium-term financial framework extending until 2030, foresees 117.5 billion euros in investments, almost 40 billion euros more than initially planned. The increase comes after the approval of a 500 billion euro fund for infrastructure and a rule change that allows defense spending to be exempt from debt limits.
Germany's special fund for infrastructure and climate will focus mainly on transport, digitalization and hospital infrastructure, underlining where Berlin sees the most urgent need to modernize the economy.
Core defense spending is expected to rise to 109 billion euros in 2027 from 82 billion euros in 2026 in the base budget. Adding 11.6 billion euros in funding for Ukraine and 9.4 billion euros in other security-related spending, such as civil protection, intelligence and IT protection.
Cabinet approval of the first draft is expected on Monday, when the budget will be formally presented. After the summer recess, discussions on the budget will begin in parliament in September, with final approval expected by the end of the year.
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