Germany Is Borrowing More Than Almost Any Country in Europe. The Payoff Is Starting to Show.
Germany's fiscal transformation is the most dramatic economic policy shift in Europe in a generation. After decades of strict borrowing limits that kept the country's finances tight but also left its infrastructure ageing, its military depleted, and its economy increasingly stagnant, Berlin has thrown open the books. The 2026 budget involves more than €180 billion in new borrowing, total government spending of €524.5 billion, and a defence allocation of €83 billion, which alone represents a 32% increase from 2025.
The early signs are that the spending is working. Goldman Sachs raised its Germany 2026 growth forecast to 1.1%, ending what had been six consecutive years of stagnation. About half of that growth is expected to come directly from the fiscal expansion. Manufacturing orders have picked up, particularly from domestic customers. Construction activity in the defence and infrastructure sectors is accelerating.
The question the ECB and other European policymakers are watching carefully is whether Germany's spending surge complicates the interest rate picture. Germany's deficit is projected at 3.7% of GDP in 2026, which would be among the highest outside a recession in the country's post-war history. German economists at the Ifo Institute have argued publicly that the government is using creative accounting to classify consumption spending as investment, which could mean the growth dividend is smaller than the numbers suggest.
The Federation of German Security and Defence Industries has grown from 243 member companies in late 2024 to 440 today, reflecting how quickly private sector capacity is being mobilised around the spending surge. That industrial transformation is real and will generate jobs, export capacity, and tax revenues. The debt that finances it will need to be managed carefully as the decade progresses.
Key Metrics:
Germany new borrowing (2026): more than €180 billion
Germany defence spending (2026): €83 billion, up 32% from 2025
Germany GDP growth forecast (Goldman Sachs): 1.1%
Germany fiscal deficit (2026 projection): 3.7% of GDP
