New German budget approved with huge defense spending increase

Germany's cabinet has approved a draft budget for 2025 and an economic framework for 2026 with record investments to revive the economy and a strong commitment to defense spending ahead of a key NATO summit.

To stimulate growth after Europe's biggest economy contracted for two consecutive years, the drafts include investments of 115.7 billion euros ($134 billion) in 2025 and 123.6 billion euros in 2026, up from 74.5 billion euros in 2024.

"We are creating a historic turning point," defense Minister Boris Pistorius said before travelling to The Hague for the NATO summit, referring to the major increase in defense spending.

"The expectations of NATO and our NATO partners toward Germany are high, and rightly so."

The plans represent a big gamble as Germany's new center right-led coalition government looks to counter surging support for the far right and bolster Europe as U.S. President Donald Trump moves to reduce Washington's involvement in the continent.

The plans - which also include mid-term financial projections - showed interest payments on debt would more than double from 30.2 billion euros in 2025 to 61.9 billion in 2029.

By 2029, interest payments would represent more than 10 percent of a budget of 573.8 billion euros.

Germany spends less on debt interest as a share of GDP than other major European economies such as France, Britain and Italy, according to International Monetary Fund figures, and despite the projected rise, this trend is likely to continue.

Germany's total defense spending is expected to rise from 95 billion euros in 2025 to 162 billion euros in 2029.

Germany's investment surge will be possible thanks to a special 500-billion-euro infrastructure fund and an exemption from debt rules for defense spending approved in March.

The budget committee will finalise details of the 2025 budget in September, when it should also be approved by lawmakers.

The first draft of the 2026 budget should be approved on July 30. It is to be discussed in parliament in September, then approved in the lower house of parliament in November and the upper house in December, following the usual schedule.