3. Public Investment in Germany

In Chapter 3, K. Rietzler and A. Watt emphasise that against the backdrop of an increasingly broad consensus that Germany has substantially underinvested in public goods for an extended period, the new Traffic Light Coalition Agreement sets out ambitious spending plans that go beyond the modernisation of Germany’s infrastructure and speeding up decarbonisation. At the same time, it has also committed to the debt brake and to avoiding tax hikes. Moreover, since the establishment of this new government, other fiscal challenges have arisen because of the war in Ukraine and a sharp rise in energy and food prices. By exploiting the scope of short-run flexibility (the debt brake is currently still suspended) and new off-budget measures, the government is seeking to square this circle by allowing greater investments in the face of competing demands. The national plan under the Recovery and Resilience Facility (RRF) complements national initiatives; but in Germany’s case, it is of limited macroeconomic relevance. The latest developments in RRF projects are sketched out in the chapter.