German economists warn Merz is wasting €500bn “special fund"

Economists at the Ifo Institute for Economic Research and the German Economic Institute (IW) have accused the German government of misusing its 500-billion-euro “special funds”.

Ifo and IW critique “special funds” spending

Economists at the Ifo in Munich and IW in Cologne have warned that the German government is misusing its special funds (Sondervermögen).

The 500-billion-euro fund was approved by the outgoing German parliament shortly after the February 2025 election and promised more money for the military, climate policy and infrastructure.

A year later, economists at the Ifo have said that 95 percent of funding in the “special funds” have not been used for additional investments but for day-to-day government spending. IW economists calculate that 86 percent of “special fund” money has instead gone to day-to-day costs.

According to a Tagesschau report, Ifo economist Emilie Höslinger said that instead of using the special fund for new infrastructure projects, the money was being used to fund areas normally funded by the core government budget, such as railways, motorways and internet infrastructure.

Ifo sceptical Merz will redirect Sondervermögen funds

Höslinger said the CDU/CSU-SPD government would likely increase the amount of special funds spent on new infrastructure projects, but the Ifo was sceptical that there would be a significant redirection of funds.

"There are significant budget shortfalls looming in the coming years, and it is not clear how they will be plugged," Höslinger explained. "We are quite pessimistic. We tend to believe that investment will be cut first rather than spending on consumption, like benefits and welfare."

It’s not just the way the German government is using its Söndervermögen that has come under scrutiny, but the term itself. In January, linguists and journalists in Marburg selected “Sondervermögen” as Germany’s “un-word” of the year (Unwort des Jahres).

Passing the “special fund” through parliament required the government to relax its debt brake (Schuldenbremse). The Schuldenbremse was introduced shortly after the 2008 financial crisis and rules that Germany’s annual debt cannot be more than 0,35 percent of its annual GDP.

According to the Unwort des Jahres jury, the term has now slipped into everyday use, but since many are not au fait with the original administrative meaning, the word is “misleading and euphemistic”. Using “technical jargon in public communication obscures what is meant by it: the assumption of debt,” the jurors explained.