Public Financing Needs for the Modernisation of Germany

Executive Summary

Germany faces a historic modernization challenge requiring €782 billion in additional public financing by 2030. Amid overlapping crises, aging infrastructure, climate obligations, and security threats, the study maps the minimum financing needs across twelve policy areas to achieve widely accepted national targets. The additional €782 billion corresponds to roughly 3% of GDP per year between 2025 and 2030 — bringing Germany’s expenditure levels closer to Austria and still below Finland. Crucially, these estimates are deliberately conservative: only broadly supported goals are included, and low-cost assumptions were applied.

The financing needs span education, decarbonization, health, housing, transport, security, and defence. Key requirements include €127 billion for education (schools, teachers, childcare, digitalisation), €208 billion for decarbonisation, €166 billion for transport infrastructure (rail, roads, public transport), €40 billion for hospitals, €31 billion for social housing, €38 billion for climate adaptation, €23 billion for internal security, and €103 billion for defence. Research requires €10 billion, while economic resilience adds €15–20 billion, and diplomacy and humanitarian efforts €22 billion. Together, these areas reflect a comprehensive modernization agenda that extends beyond earlier narrower assessments by BDI or IMK/IW.

Municipalities, states, and the federal government will all face steep increases in expenditure needs. The average additional financing burden amounts to 11% of federal expenditure, 5% for the states, and 10% for municipalities. Particularly at the local level, non-financial bottlenecks — shortages of skilled workers, bureaucratic hurdles, and insufficient administrative capacity — pose serious risks to effective implementation, making stable, long-term financing conditions essential.

The study provides a conservative baseline, leaving politically controversial but potentially large needs outside its scope. Expenditures for Ukraine support, expanded semiconductor subsidies, or deeper housing programmes are excluded. Moreover, many estimates are cautious minimums — e.g., climate adaptation and defence — meaning actual requirements may be substantially higher. The exercise is intended to reset fiscal debate: financing strategies must be shaped around democratically defined goals, not the other way around.

Policy recommendations

1. Anchor financing debates in concrete, widely accepted targets rather than arbitrary fiscal ceilings.
2. Expand federal–state–municipal coordination to reduce fragmentation and improve co-financing efficiency in education, health, and infrastructure.
3. Address non-financial barriers systematically by investing in administrative capacity, streamlining procedures, and tackling skilled labor shortages in education, health, and construction.
4. Strengthen fiscal frameworks for stability and flexibility, ensuring multi-year commitments that enable long-term projects in climate, housing, and defence.
5. Use this conservative baseline as a floor, not a ceiling, and prepare for upward revisions as security, resilience, and climate demands intensify.