Germany Floats a New €100B Resilience Fund
The so-called Germany Fund would bring together public and private money to invest in German infrastructure, critical industries, defence -- and German startups building technology to serve all three.
The war in Ukraine; the spectre of Russia; Trump’s tariff policy and tensions with China. Countries in Europe need to improve their resilience in defence, infrastructure and critical industries in the wake of geopolitical and economic headwinds like these. Yet financing that effort has proven to be a challenge. Today, there’s news out of Germany on that front. The country is working on a new, €100 billion ($116 billion) investment fund to back companies and technologies to improve the security and operations across strategic areas such as these.
According to a report in Bloomberg the government is proposing to put €10 billion into the fund – dubbed the Germany Fund, or Deutschlandfonds. It will seek investment from international backers from venture capital, private equity, family funds, and others for the remainder.
The fund will aim to invest in existing, large infrastructure projects and businesses, but, critically, also in startups – described as “higher risk projects, particularly with smaller and mid-sized companies” in the report.
Generally, startups, particularly those trying to scale, have found it hard to raise money in Europe. This will be Germany’s way of not just giving German startups that capital, but also giving them a seal of approval to help them raise more.
“The Germany Fund will be used to make investments in growth, innovation and competitiveness in cooperation with private German and European investors,” said a ministry spokesperson quoted by Bloomberg. “Private capital is a key lever for overcoming major economic challenges.”
The €10 billion is still being negotiated with the ministry of finance and state development bank KfW, Bloomberg noted, but the financing has been “secured” already.
Importantly, the government has yet to give specifics on the timeline for the fund to launch, the investment structure, and the specific investment strategy. There is likely to be a lot of debate around what makes sense to come out of the fund, and what does not. The devil is in the details.
(And, again, even when the state agrees on how to seed the first €10 billion, there will still be €90 billion more to raise from outside backers.)
The Bloomberg report noted some other details about the plans.
For starters, it sounds like the sheer value of the fund is likely to make it into a catch-all for preexisting, related investment proposals. These include a currently-dormant €1 billion raw materials fund; and a potential defence industry investment fund still under discussion.
The fund could also roll up German investments in major infrastructure and industrial companies. The country already has stakes in two electricity grid operators, 50Hertz and TransnetBW, and it’s looking at two more (TenneT and Amprion). Equally it’s working on a blocking minority stake in arms maker KNDS (a Franco-German venture) and has expressed interest in a stake in the submarine division of ThyssenKrupp.
The size of the Germany Fund could also make it a magnet for a lot of other expenditure areas that might, on the surface, sound more tenuous in relation to the other investments. Bloomberg floated that one could be financing affordable housing.
Part of that might be down to the coalition nature of the government. The original idea for the Germany Fund appears to have been floated in 2023 by members of the SDP (and it was discussed as a cross-party concept even earlier). The left-of-centre SDP is now a part of the coalition led by Chancellor Friedrich of the right-leaning CDU. As in any coalition there are cooperations, but also tensions.
In any case, bringing infrastructure and defence up to speed in the face of outside threats are not the only reasons for the Germany Fund. Germany has been working on reordering and freeing up how it spends and invests money to boost its flagging economy.
Earlier this year, lawmakers approved an amendment to its “debt brake” (which is a constitutionally-bound rule that limits how the government can borrow and spend money) that gives it room to put an additional €500 billion into infrastructure spending and removes borrowing limits on spend of more than 1% of GDP on defence.
The Bloomberg report also noted that transactions/investments made from the Germany Fund will be structured as equity stakes, so they will also be exempt from the debt brake.
The Germany Fund appears to be separate from a smaller sovereign wealth fund in the country that aims to be worth some €200 billion by 2036.
