Germany's Budget Overhaul: A Transformation of Fiscal Policy

Germany's Finance Minister Lars Klingbeil has presented a groundbreaking 2026 draft budget, marking a significant departure from the country's long-standing fiscal discipline. The proposal, set before parliament, aims to boost economic growth through substantial increases in borrowing and spending, breaking away from traditional financial restraint.

The government, a conservative-Social Democrat coalition, plans to spend a total of 630 billion euros, including special funds, with borrowing expected to rise to 174.3 billion euros in 2026. This figure is more than three times the amount borrowed in 2024 and marks the second-highest borrowing level in Germany's history, following the record set during the COVID-19 pandemic in 2021.

Despite constitutional limits on new debt, known as the 'debt brake,' the coalition has secured amendments to allow increased borrowing for defense and national security, alongside infrastructure and climate initiatives. However, this shift faces scrutiny from the Federal Audit Office, which warns of shrinking economic performance against rising debt.

(With inputs from agencies.)