The federal governments of the past few years have cost Germany billions because they neglected investments, meaning the country now has to spend significantly more. This judgment was made by two of Germany’s most important economic experts. They are handing over a 600 billion euro contract to the traffic light, which will transform their investment plans.
Crumbling roads, rails and bridges, outdated buildings, inadequate educational infrastructure, lack of infrastructure for electricity, hydrogen and heat: Germany is facing expensive tasks. Germany needs a lot of money for future investments, but is not allowed to spend any because of the debt brake.
Things cannot continue like this, demand two of the country’s leading economic experts. Michael Hüther, Director of the German Economic Institute (IW), and Sebastian Dullien, Scientific Director of the Institute for Macroeconomics and Economic Research (IMK), criticized past federal governments and the traffic light plans when presenting their study on infrastructure and the debt brake. Coalition around Economics Minister Robert Habeck (Greens) and Finance Minister Christian Lindner (FDP).
The experts demand that Germany needs to make fundamental changes quickly and invest a lot of money. The twelve most important points at a glance:
Hüther and Dullien attest that Germany has an urgent need for investment of around 600 billion euros over the next ten years. Among other things, the experts demand:
The money is urgently needed to keep the country competitive. They would have to flow in addition to the funds already planned in the budgets and only include pure investments, not operating costs such as salaries and maintenance, says Hüther.
The study also does not take into account industrial subsidies, for example to keep energy-intensive companies in the country. The actual costs for the coming years could therefore become significantly more expensive.
Five years ago, experts were still calling for 460 billion euros in infrastructure investments. “The bad thing is that nothing has gotten better,” says Hüther, looking at the time since then. Now, given the rise in construction prices and interest rates, even 600 billion over ten years is a conservative estimate.
The debt now probably cost the country around 50 billion euros. Hüther criticizes that it could have saved a large part of this in times of zero interest rates. “This period of low interest rates was not taken advantage of. But we had pointed this out several times.”
Compared to economic performance in 15 years, German debt would be lower with the required investments than without it, says Dullien. By boosting growth, the money increased wealth more than the debt burden. This will reduce the debt ratio.
Due to the lower debt ratio, the investments are generational, emphasized Dullien.
According to the experts, the “structural change with a deadline” requires a reform of the debt brake with the exception of investments or a 600 billion euro special fund. Both options are conceivable, but the special fund is probably easier to implement politically.
Some parties need to “take off ideological blinders,” demands Dullien. A swipe at the FDP and Finance Minister Lindner.
“In my view, the simpler and more communicable solution is a special fund,” says Hüther. He hardly believes that the traffic light will change this. In the coming legislature there is a danger of not having a democratic majority for helpful policies – a swipe at the AfD and Sahra Wagenknecht. That’s why he considers the special fund to be the more assertive option.
Hüther does not share any reservations about an exemption for investments from the debt brake. Critics like Finance Minister Lindner fear that future coalitions would undermine the debt brake by describing everything as investments. “Just distrust of all actors in parliament” is not a good sign either, replies Hüther.
“600 billion seems like a horror number,” says Dullien. However, they would correspond to 1.4 percent of German economic output. Quite manageable and also justifiable with loan financing.
Compared to the costs of the tax cuts planned by the FDP, 60 billion a year is justifiable, Hüther also emphasized. Politicians need to rethink their priorities.
While politicians discuss whether they should take on more debt for infrastructure, they ignore the more pressing question of where to use it. Hüther complains that the debate suggests a budget emergency that does not exist. “But there is no discussion about the things we are talking about here. You hope things fall from the sky.”
The experts do not share the hope that private investments could relieve the state of investments in infrastructure. Public goods such as roads and schools usually do not generate any profit, which is why no businessman invests in them.
“What we have advertised here are investments for public networks,” says Hüther. “This cannot be meaningfully covered with private capital. But they can mobilize private investment.”
Private investments are still necessary in a multiple of the 600 billion euros. But it could only start if the state creates the infrastructure to make it worthwhile.
Experts believe that money alone will not save the Federal Republic’s infrastructure. Hüther believes that the construction industry can handle the expected orders. But you need faster planning and implementation times.
In recent years, the state has accelerated the implementation of mobile communications projects, says Dullien. “Why shouldn’t this work in other fields too?”
“The question of what we leave behind for future generations doesn’t just concern the amount of debt,” says Hüther. The questions about the condition in which we hand over roads, schools and railways to them and whether they are growing up in an economically productive country are just as important as the sheer amount of debt. Politicians are currently ignoring this question by limiting the amount of credit.
Hüther calls the 1.1 percent of the federal budget that Finance Minister Lindner plans for defense spending in the 2027 federal budget “actually irresponsible.” Germany has to budget at least two percent if it wants to be taken seriously.
Dullien contradicts fears that additional spending on infrastructure could drive inflation: Inflation is actually increasing because of poor infrastructure. If an engineer is late on a train or in a traffic jam instead of working with the customer, it costs money. In the end, the consumer pays.
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