Published : 13 Nov 2026, 09:33 PM
Updated : 13 Nov 2026, 09:33 PM
Germany is set to raise its borrowing by more than €210 billion ($222 billion) next year, the second-highest amount since World War Two, after parliamentarians on Friday backed a budget plan that Chancellor Friedrich Merz hopes will revive his unpopular government.
Parliament's budget committee agreed the package in the early hours of the morning, after weeks of haggling between coalition partners that saw plans for taxes on plastics and sweetened drinks as well as welfare cuts dropped or delayed. The budget, which proposes spending of €561 billion, is now free to be passed by parliament.
Merz's government has vowed a major push to strengthen Germany's core infrastructure and rebuild its military after decades of underinvestment and last year agreed to ease borrowing limits on defence spending.
But it has struggled to reconcile the competing priorities of his conservative Christian Democrats (CDU) and their centre-left Social Democrat (SPD) partners, who joined forces after last year's election.
Merz, whose personal approval ratings have plunged since his election last year, has promised a wide-ranging programme of reforms to the pension, tax and social security systems but he has struggled to keep the coalition on course.
"The key event is that they passed it," said Holger Schmieding, chief economist at Berenberg Bank, who said the lack of major cuts to welfare spending and the overall tax burden reflected the problems reaching agreement between the coalition partners.
"From an economic perspective, you would have hoped for a more ambitious budget," he said.
Budget Protects Social Cohesion, Say Coalition Lawmakers
Total new borrowing reached €210.4 billion, just under the record €215.4 billion recorded in 2021 during the COVID-19 pandemic, the figures showed.
That included new borrowing of some €123 billion from the core budget, which does not include additional borrowing authorised under special measures to allow greater spending on infrastructure and defence agreed last year.
"The budget is based around consolidation, investment and strengthening cohesion," Christian Haase, a CDU member of the parliamentary finance committee, said. "Civil defence, military defence and investment in transport and research, on the one hand, are complemented by a strong welfare state."
This week, Germany's Council of Economic Experts forecast economic growth of 1 percent next year but said the government had to rein in spending on defence and retirement benefits to get runaway deficits under control.
Thorsten Rudolph, an SPD member of the budget committee, said the budget reflected the need to protect working families and children and maintain social cohesion, despite the pressure on public finances.
"We make savings to hold the budget together – but not at the expense of what holds our country together and drives it forward," he said.
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Agreement on the package concealed unhappiness among some in Merz's party about what they saw as excessive concessions to the SPD and a "structural imbalance" in the decision making process.
"If the SPD sticks to its ‘no’, the original proposal will generally stand," said Andreas Mattfeldt, a CDU member of the budget committee.
For their part, opposition parties accused the government of concealing borrowing and spending on basic income support.
The far-right Alternative for Germany said the government was "running up debts as if there were no tomorrow."
"This debt spree is unprecedented on a global scale. It threatens to render Germany completely unable to act very soon," joint party leaders Alice Weidel and Tino Chrupalla said in a statement.
Late on Wednesday, officials in the coalition agreed to scrap a proposed tax on plastic packaging materials and to delay a tax on sugared drinks until 2028. They also rolled back plans to cut benefits for the children of low-income families.
A planned cut to an electricity tax that had been championed by Merz was delayed after the committee failed to reach agreement on €5 billion in financing measures to pay for it.
However, Merz he expected more discussion on this issue in the coalition next week.
"I remain committed to my aim of reducing the electricity tax to the European minimum, with the reduction taking full effect from next year," he told reporters in Dublin, where he was attending a European Union summit meeting.
