Debt debate in Germany: Loans did not go to investment

Germany’s Ifo institute said the government has diverted a substantial share of new borrowing meant for infrastructure and climate projects into routine budget spending rather than investment. Of €21.6 billion in loans taken in the first half of 2026, only €10.1 billion translated into additional investment, according to the analysis. The finding matters because Berlin’s debt-financed spending push is central to its effort to modernize the economy, and weak investment conversion undermines the expected growth payoff. Watch for the government’s response on budget rules and whether future borrowing is tied more tightly to capital projects.