German cabinet approves draft 2026 federal budget with high borrowing

On 24 September 2025, Germany's federal cabinet approved the draft budget for 2026. The plan was drawn up by Finance Minister Lars Klingbeil (SPD) in the coalition of Chancellor Friedrich Merz's CDU/CSU and the Social Democrats. It still needed approval by the Bundestag, the lower house of parliament.

The draft relied on high new borrowing. This was made possible by a constitutional change in March 2025, which loosened the debt brake (the constitutional limit on deficits) for defence spending above a set threshold. The same reform created a special fund of 500 billion euros for infrastructure and climate measures, spread over twelve years. Money from that fund was part of the 2026 plan.

The budget mattered because it set the pattern for the coalition's fiscal policy: more investment in defence and infrastructure, financed largely by debt. Critics, including budget experts, warned that the special funds could free up money in the regular budget for other uses and that gaps in later years remained unresolved. Those gaps are why later budgets, including the one for 2027, have faced pressure for additional funds.