Macroeconomic analysis of the German special fund 2025 in the context of the economic quantity equation

In 2025, the Federal Republic of Germany approved an extraordinary special fund amounting to €500 billion. The aim of this measure is to effectively address current political, security, climate policy, and infrastructure challenges. This unique fiscal policy instrument represents an extraordinary volume and was established outside the regular federal budget. This analysis examines the economic impact of this special fund from a macroeconomic perspective using the quantity equation (MV = PT), a proven model for systematically recording changes in the money supply and their real economic implications.

The central object of investigation is the effect of investments on the four core elements of the equation: the money supply (M), the velocity of money (V), the real trade volume or gross domestic product (T), and the aggregate price level (P). Through the combination of credit financed government spending and expected increases in demand, the special fund exerts both supply- and demand-side effects. This analysis also explains the monetary mechanisms of money creation based on government borrowing and quantifies their effects on the monetary aggregates M1 and M3. A particular focus is placed on the potential role of the European Central Bank in monetizing debt through open market operations.

In addition to the direct economic stimulus, the study also analyzes the financial sustainability of the program. For this purpose, the development of the Debt Service Coverage Ratio (DSCR) is simulated under various interest rate scenarios. The analysis shows that, despite an increased interest burden, sustainability is maintained assuming moderate interest rates while simultaneously reducing fiscal space. In addition, the sectoral allocation of funds is critically examined. In particular, the defense spending of EUR 250 billion is assessed as consumptive expenditure with limited long-term benefits for the economy's production potential. Sustainability aspects, particularly with regard to ecological trade-offs and ESG criteria, are taken into account in this context.

In 2025, the Federal Republic of Germany approved an extraordinary special fund amounting to €500 billion. The aim of this measure is to effectively address current political, security, climate policy, and infrastructure challenges. This unique fiscal policy instrument represents an extraordinary volume and was established outside the regular federal budget. This analysis examines the economic impact of this special fund from a macroeconomic perspective using the quantity equation (MV = PT), a proven model for systematically recording changes in the money supply and their real economic implications.

The central object of investigation is the effect of investments on the four core elements of the equation: the money supply (M), the velocity of money (V), the real trade volume or gross domestic product (T), and the aggregate price level (P). Through the combination of credit financed government spending and expected increases in demand, the special fund exerts both supply- and demand-side effects. This analysis also explains the monetary mechanisms of money creation based on government borrowing and quantifies their effects on the monetary aggregates M1 and M3. A particular focus is placed on the potential role of the European Central Bank in monetizing debt through open market operations.

In addition to the direct economic stimulus, the study also analyzes the financial sustainability of the program. For this purpose, the development of the Debt Service Coverage Ratio (DSCR) is simulated under various interest rate scenarios. The analysis shows that, despite an increased interest burden, sustainability is maintained assuming moderate interest rates while simultaneously reducing fiscal space. In addition, the sectoral allocation of funds is critically examined. In particular, the defense spending of EUR 250 billion is assessed as consumptive expenditure with limited long-term benefits for the economy's production potential. Sustainability aspects, particularly with regard to ecological trade-offs and ESG criteria, are taken into account in this context.