600 Billion Investment Gap in Germany – Yet It’s Not About the Money

_ Dr. Ulrich van Suntum, honorary professor, University of Münster, former Secretary-General, German Expert Council for the Assessment of Overall Economic Development (SVR). 25. May 2024.*

Government revenues in Germany are at a record high, yet there is a billion-dollar investment gap. The problem is not the budget, but how it is managed. A dilemma, but it could be improved.


When the German Trade Union Confederation (DGB) and employers agree, something special must be at hand. In a joint short study, the scientific institutes of both parties highlighted the shortcomings of infrastructure policy. The employer-affiliated Institute of the German Economy (IW) and the union-owned Institute for Macroeconomics and Business Cycle Research (IMK) see an investment gap of nearly 600 billion euros in public investments.

This represents 14 percent of the annual economic output or a good quarter of the total state budget. The backlog is to be addressed within ten years through massive investments in roads, rail networks, schools, and climate protection. Five years ago, economists from Cologne and Düsseldorf had already presented a similar calculation. At that time, the public investment gap was estimated at 460 billion euros. However, climate protection goals have since been tightened, and construction prices have risen enormously.

This gigantic task can no longer be financed from current budgets. Special loans would need to be taken out: either by softening the debt brake or by creatively circumventing national and EU fiscal rules. These are remarkable recommendations. Independent scientists should critically scrutinize politics rather than suggesting dubious financing tricks to cover up their failures. Ironically, the study is titled “For Solid Fiscal Policy Reloaded,” a framing that could come from Habeck’s office.

Debt Brake is Not the Cause of the Investment Gap

In the core issue, the authors, including the two institute heads Michael Hüther (IW) and Sebastian Dullien (IMK), are indeed right. The state of German roads is a disgrace, the punctuality and service of the railway often remind one of a developing country, and many things are amiss in schools and universities. Unfortunately, the reasons for this are not discussed at all. Instead, the authors uncritically adopt the politician’s excuse that the state lacks sufficient funds.

Yet, government revenues are at a record high, as is the government share of economic output, recently at 51 percent of GDP. Scientists are not mere calculating servants of the government but should speak out uncomfortable truths openly. At the very least, the institutes make it too easy for themselves when they only recommend more debt contrary to fiscal rules, which the politicians have, of course, enthusiastically embraced.

In reality, the problem goes back to decades of neglect and misdevelopment. And the investment gap cannot be explained by the debt brake, which has only been in the constitution since 2009 anyway. Rather, it is a specifically “German disease,” as argued by a study by Felix Rösel and Julia Wolffson (TU Braunschweig) published in Wirtschaftsdienst (7/22). With a public investment rate of 2.1 percent of GDP, Germany is far below the European average, which was almost twice as high at 3.7 percent over the past 20 years.

Bureaucracy as the Root of All Evil

This cannot be attributed to overly strict fiscal rules, as the analysis by the Braunschweig economists shows. The key factors for the German problem are quite different and have little to do with a lack of money. Primarily, these are long and cumbersome approval procedures, a lack of planning capacities in the offices, and last but not least, massive political and legal resistance to anything that might disturb the peace of the residents. Other government advisors, such as the Scientific Advisory Board at the Federal Ministry of Economics in 2020, had already criticized this. Often, billions of euros in infrastructure financing are not even called upon because states and municipalities lack ready-to-implement projects despite massive needs.

The Council of Economic Experts points out in its current spring report that it can be done differently. For example, for the renovation of bridges, approval obligations and environmental impact assessments can already be waived by law. For green favorite projects like wind turbines and solar farms, no one bothers with them anyway. It is therefore hardly understandable why important municipal road projects such as bypasses or the construction of roundabouts are often arbitrarily delayed for decades.

Denmark Shows: It Can Be Done Differently

Countries like Denmark have long ensured that building rights can be enforced quickly here. And that doesn’t cost money; it saves billions instead. However, such possibilities are not mentioned at all in the joint IW/IMK study. Nor is it discussed where the construction capacities are supposed to come from to quickly implement all the missing investment projects.

It is also disturbing to see the uncritical adoption of so-called climate goals. These not only limit total CO₂ emissions but also include a veritable flood of individual requirements and projects, which cause unnecessarily high costs. For example, the costs for insulation measures in the building sector are often not in any reasonable proportion to the greenhouse gases saved as a result. Nevertheless, according to the IW/IMK study recommendation, an additional 200 billion euros should be spent on such climate protection investments alone. However, from 2027, emissions in the building sector will be capped EU-wide by Emissions Trading II anyway. This is not mentioned in the study either. For a bachelor’s thesis, one would say: Unsatisfactory, please revise.

* Original publication in the German newspaper “JUNGE FREIHEIT”.

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