“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.