Germany is facing a significant challenge with its deteriorating infrastructure, which may necessitate investment of around €400 billion ($432 billion) over the coming years. This alarming conclusion was drawn by Lars Feld, an influential economist and professor at the University of Freiburg, in a recent study commissioned by fund manager Union Investment. Feld, who also serves as an adviser to Finance Minister Christian Lindner, emphasized that the country’s highways, rail systems, and energy infrastructure desperately require urgent financial support. He pointed out that government investment has consistently failed not only to improve these systems but even to maintain them at their current insufficient status.
The details outlined in Feld’s study indicate a pressing need for substantial investment in various segments of infrastructure. Specifically, it is estimated that over €57 billion will be needed for road infrastructure between 2025 and 2028 alone, while railway infrastructure requires an additional €63 billion. More significantly, the transition to green energy entails long-term investments in both onshore and offshore facilities, projected to cost around €270 billion. This indicates a multifaceted approach is necessary to develop the country’s infrastructure, which will not only address immediate repair needs but also support long-term sustainability goals.
However, securing the capital for these monumental investments poses a serious challenge. Germany’s economy is currently stagnating, and the government’s capacity to allocate funds is constrained by strict fiscal regulations known as the debt brake. In 2022, Germany’s national investment rate—a measure of public investment compared to gross domestic product (GDP)—was a mere 2.6%. This figure is about one percentage point lower than the average among OECD member countries, indicating that Germany is lagging when it comes to public investments in comparison to its peers.
To bridge this investment gap, Feld suggested leveraging private investment by introducing infrastructure funds. Given that the German state already has interests in numerous infrastructure companies, there’s potential to grant these entities greater borrowing capabilities. This could help tap into private capital markets for necessary funding while reducing the immediate liability on public finances. This approach may channel additional resources into critical infrastructure projects, potentially revitalizing the sector and encouraging economic growth.
The urgency of addressing the degradation of Germany’s infrastructure has also been echoed by government officials. On the heels of Feld’s report, German Economy Minister Robert Habeck proposed the creation of a national investment fund aimed at revitalizing the struggling economy. This fund would incentivize private companies by allowing them to receive a tax deduction or direct reimbursement from the state for 10% of the value of their investments, thus stimulating participation from the private sector and generating the necessary capital for public projects.
In summary, the substantial requirement for reinvestment in Germany’s infrastructure highlights critical issues within the national economy, necessitating an immediate response. With an estimated €400 billion needed to address vital areas including transportation and energy, and with existing budgetary constraints, the integration of private capital through creative investment models appears essential. The proposal of a national investment fund underscores the government’s recognition of these challenges, aiming to bolster both public and private sectors toward a sustainable and robust infrastructure that can support Germany’s economic future. The implementation of these strategies will be crucial in reversing the trend of declining investment and ensuring that Germany remains competitive in the global landscape.
