Historic borrowing was meant to lay the foundation for future growth. That hasn’t happened, experts say.
FRANKFURT — Germany’s government has redirected the bulk of funds originally earmarked for infrastructure into covering budget gaps, according to new reports from two leading research institutes — raising fresh doubts about Berlin’s ability to deliver on its long-promised investment drive.
The findings — coming a year after German lawmakers approved historic constitutional reforms to unlock hundreds of billions of euros in borrowing — could expose Chancellor Friedrich Merz to fresh criticism that his government has failed to harness a €500 billion infrastructure and climate fund to revive Germany’s stagnating economy.
The scale of the misallocation is striking, according to the reports. The Cologne-based German Economic Institute (IW) calculates that 86 percent of the funds were diverted, while the Ifo Institute puts the figure at an even more damning 95 percent.
“We have found that policymakers have used almost all of the debt-financed funds for other purposes, namely, to cover budget shortfalls. This is a major problem,” said Ifo President Clemens Fuest.
After two consecutive years of recession, Germany’s economy barely grew in 2025. It was widely expected to pick up speed in 2026, helped by public investment. But a rebound appears to have failed to materialize thus far.
New headwinds from the conflict in the Middle East will make any recovery even more contingent on effective government spending, analysts warn.
The IW report calculated that, last year, the governing coalition of the Christian Democratic Union (CDU) and Social Democratic Party (SPD) in Berlin tapped just 42 percent of funds originally earmarked. The conservatives and SPD “had the chance to clear the investment backlog. So far, they have not taken it,” said Tobias Hentze of the German Economic Institute.
According to Ifo, borrowing from the €500 billion fund increased by €24.3 billion in 2025. Actual federal investments, however, rose by only €1.3 billion overall from 2024.
The reason, says Ifo, is that Berlin shifted investment commitments from the current budget into the special fund — known as the Special Fund for Infrastructure and Climate Neutrality, or SVIK — in order to make room for higher day-to-day spending. As such, the net increase in actual overall investment has been minuscule.
“There were shifts of individual items from the core budget into the debt-financed [special fund] SVIK, particularly grants in the transport sector, which meant that less was invested in the core budget than in previous years,” said Ifo researcher Emilie Höslinger. “A large part of the special fund’s investments is therefore not truly additional.”
Germany’s Bundesbank has previously called on the government to use the SVIK’s borrowing capacity “more purposefully” to ensure that the borrowed money actually creates the potential for faster growth in future, which will in turn make it easier to service the debt that has been taken on.
Before the fund was launched, critics including the Federation of German Industries (BDI) warned that the potentially beneficial effects of the SVIK risked being diluted unless the money was put to use properly.