Greater finances being allocated. - Indusry suggests creating a billion-euro special fund.
The German business world is pushing for the creation of substantial funds worth billions of dollars to help reinforce Germany's position in a sustainable manner. The Federation of German Industries (BDI) is recommending an extra state funding demand of up to 400 billion euros over a ten-year period.
These funds will be allocated to various areas, such as transportation routes, kindergartens, schools, housing, and climate change initiatives. BDI President Siegfried Russwurm emphasized the need for a collective effort from the federal government, states, and municipalities, with no parties excluded.
Businesses are growing increasingly concerned that much-needed investments will be delayed, resulting in a lack of planning security. In a competitive arena, the BDI asserts that swift political action is necessary.
Germany's economic sluggishness is yet to show signs of improvement, with the country projected to be among the slowest growing industrial economies by 2024, according to a BDI report. Urgent structural reforms have been called for by economic organizations like the BDI for quite some time.
These reforms encompass less administrative burdens, faster planning and approval processes, and improved tax frameworks to encourage more investments. The ultimate goal is to boost Germany's competitiveness on an international scale.
Huge public investment needs
According to the BDI, the German government must work to address a significant backlog of public investments or push for their realization. The BDI specifically states that most of the largest investment needs are in the areas of infrastructure, education, housing, and transportation.
Infrastructure-related investments, including education, housing, municipal infrastructure, and transportation infrastructure, are expected to grow by an approximate €315 billion over the next decade. Infrastructure investments account for nearly half of the total requirement, amounting to around €160 billion in transport infrastructure. This includes railway renovation, digitalization, and expansion; as well as maintenance and expansion of roads and public transportation.
The climate-friendly conversion of the economy necessitates additional investment incentives of around €41 billion by 2030. This encompasses turning industries into more carbon-neutral entities and setting out an electric charging infrastructure. The conversion of the German power grid and other hydrogen and CO2 infrastructures also requires appropriate financing, although there is currently a lack of tangible plans from the federal government.
Financing resilience goals
To meet Germany and the EU's resilience goals, it is expected that up to €40 billion in funding may be required. This money could be invested in initiatives to lessen reliance on economically significant regions like China, specifically in the fields of microelectronics and battery technology.
Although the BDI has been exploring the implications of the Federal Constitutional Court's budget ruling on financial planning, President Russwurm stated that there was a need for a comprehensive view of the budget. First, the federal government must spur growth through structural reforms, maximize efficiency gains, and display the courage to prioritize critical measures.
"We would only consider the establishment of content-specific and time-specific special funds if the government demonstrates its ability to promote growth, extract efficiency gains, and demonstrate the courage to prioritize," said Russwurm. These special funds could have a total budget of €400 billion.
In contrast to the Bundeswehr's debt-financed special fund, which has a €100 billion budget and does not count toward the debt brake, the BDI is against the abolition or weakening of the debt brake in the Basic Law. The debt brake has played a pivotal role in curbing the escalation of the federal budget deficit.
Different types of special funds
The BDI proposes the creation of diverse special funds geared to specific tasks, each with a clear definition of objectives and financing mechanisms. Additionally, these funds should feature a repayment plan.
Specifically, the BDI suggests that infrastructure and resilience needs could be accommodated in a special fund with a duration of 8-12 years, while climate and transformation needs could be addressed through two successive special funds lasting for twice the duration of one legislative period, extending up to 2041.
The most suitable financing approach for these funds would be the issuance of federal bonds with maturities exceeding ten years, according to the BDI. Each special fund would be required to have repayment terms.
Government deliberates on the budget
This proposal emerged amid challenging talks between the German government over the 2025 federal budget. The FDP is adamant about adhering to the debt brake and is critical of any new special funds. Cabinet members are anticipated to make a decision on the budget by the beginning of July.
The German industry is urging policymakers to create a multi-billion-euro package to maintain Germany's strong standing in a sustainable manner. They are particularly focused on improving infrastructure, promoting climate change initiatives, and fostering growth through targeted structural reforms. A recently published report warns that Germany may remain one of the slowest growing industrial nations in 2024, consequently emphasizing the need for accelerated action.
