German Parliament Approves €524.5 Billion 2026 Budget with Increased Borrowing for Defense and Ukraine Aid

Bundestag Greenlights 2026 Federal Budget

The German Parliament, the Bundestag, officially approved the 2026 federal budget on Friday, November 28, 2025. The budget, totaling 524.5 billion euros, marks a notable shift from previous years of strict financial discipline, characterized by increased borrowing and substantial allocations towards defense and aid for Ukraine. The approval came with 322 votes in favor and 252 against, reflecting the governing coalition's backing for the fiscal plan.

Increased Spending and Significant Borrowing

The core budget for 2026 is set at 524.5 billion euros, representing an increase of 21.5 billion euros compared to the 2025 budget. To finance these expenditures, the government plans to borrow approximately 97.9 billion euros within the core budget. However, when factoring in loans from special funds designated for infrastructure and defense, the total new debt for the year is projected to exceed 180 billion euros. This level of borrowing is the second highest in Germany's history, surpassed only by the 215 billion euros borrowed during the 2021 pandemic.

This significant increase in debt is facilitated by a 500 billion euro infrastructure fund and an exemption from debt rules for defense spending, both approved earlier in the year. While Germany's 'debt brake' typically limits borrowing to 0.35% of gross domestic product, these special funds operate outside this constitutional constraint.

Key Allocations: Defense and Aid to Ukraine

A central feature of the 2026 budget is the substantial increase in defense spending and support for Ukraine. The defense budget is set to rise significantly, with figures reported between 82.7 billion euros and 108 billion euros, marking the highest level since the end of the Cold War. This includes funds from a 100 billion euro 'special fund' established at the onset of the Ukraine conflict. Projections indicate that defense expenditures will continue to grow, aiming to reach 3.5% of GDP by 2029.

Aid to Ukraine will also see a considerable boost, increasing from 8.5 billion euros to 11.5 billion euros. This represents Berlin's largest financial commitment to Kyiv since 2022. These funds are earmarked for the procurement of essential military equipment, including artillery systems, drones, and armored vehicles, reinforcing Germany's strategic support for Ukraine.

Investments for Economic Revival and Other Priorities

The budget emphasizes high investment levels to stimulate Europe's largest economy, which has experienced two years of contraction. The core budget allocates 58.3 billion euros for investments. Including additional expenditures financed through extra-budgetary sources, such as the Climate and Transformation Fund and the new infrastructure fund, total federal investment is expected to reach approximately 126.7 billion euros in 2026. This marks a 10% increase over 2025 levels.

Other significant allocations include 197 billion euros for the Federal Ministry of Labor, reflecting a continued focus on social security and welfare. The budget also includes increased funding for games development, rising to 125 million euros, and allocates 156 million euros for carbon removal initiatives in 2026 as part of a larger 476 million euro package through 2033. Measures such as reduced industrial power prices and aviation tax relief are also included to support key sectors.

Political Landscape and Future Outlook

The approval of this budget underscores the government's commitment to addressing current geopolitical challenges and revitalizing the economy through strategic investments. Chancellor Friedrich Merz has prioritized economic revival, relaxing strict debt rules to enable this spending blitz. While the budget passed with the governing coalition's majority, opposition parties, including the Greens and the Alternative for Germany (AfD), voiced criticism regarding the increased debt and spending priorities. Finance Minister Lars Klingbeil acknowledged potential fiscal challenges from 2027 onwards, describing the passage of the 2026 budget as 'a warm-up' for future work.