Increased German government debt spending designed to boost infrastructure investment is being misused, economists charged Tuesday, warning that Berlin risked wasting a chance to revive its moribund economy.
Chancellor Friedrich Merz last year vowed to borrow and spend hundreds of billions for an infrastructure special fund over coming years in what was dubbed a spending “bazooka” aimed at getting Europe’s top economy back on its feet.
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But after a year of the fund’s operation, economists warned that most of the new debt so far was being used to fund day-to-day spending or previously planned schemes as opposed to new infrastructure projects.
Some 95 percent of the special fund’s money did not lead to additional investment, Ifo institute economists calculated, while the IW Koeln estimated a figure of 86 percent.
AFP has contacted the chancellery as well as the finance and economy ministries for comment.
Emilie Hoeslinger, co-author of the Ifo study, told AFP that railways, motorways and broadband were among the areas where the government had simply shifted spending out of the core budget and into the special fund.
“Investment activity in the core budget, the actual budget, was too low,” she said.
“While debt-financed investments have been made, tax-financed investments in the core budget have fallen very, very sharply.”
The findings are set to pile pressure onto Merz, who is taking increasing flak as signs of an economic turnaround prove elusive and more warning lights flash red.
Recent industrial orders and production data have disappointed, and investor morale has plunged to its lowest level in almost a year as the Mideast war rattles market nerves, said a ZEW survey released Tuesday.
Volkswagen Group CEO Oliver Blume — who is planning to cut 50,000 posts in Germany by the end of decade — last week warned that Germany’s business model was no longer sustainable in its current form.
Hoeslinger told AFP that while more government money would in future probably be spent on new investment, she was sceptical that there would be large increases.
“There are significant budget shortfalls looming in the coming years and it is not clear how they will be plugged,” she said.
“We are quite pessimistic. We tend to believe that investment will be cut first rather than spending on consumption, like benefits and welfare.”
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