Germany launches multi-billion investment fund. This is how the government wants to revive the economy.

As reported by Bloomberg, the fund will initially be backed by at least €10 billion of public money , which aims to mobilize up to ten times more private capital.

"The German Fund will be used to invest in growth, innovation, and competitiveness in cooperation with private German and European investors," the Ministry of Economy said in response to questions from Bloomberg. "Private capital is a key tool in overcoming serious economic challenges."

Friedrich Merz wants to revive the German economy after the recession

The new flagship fund is part of Chancellor Friedrich Merz's administration's efforts to revive growth in Europe's largest economy after two years of recession . The initiative also reflects growing geopolitical risks as the German government seeks to secure crucial supply chains in response to Russia's invasion of Ukraine, Donald Trump's trade wars, and China's assertive foreign policy.

As announced by the Ministry of Economic Affairs, the source of financing for the German Fund by the government is part of ongoing negotiations with the Ministry of Finance and the state development bank KfW.

After Merz approved the project and it received the support of Finance Minister Lars Klingbeil , the official start of work is expected to take place in September or October after the parliamentary summer recess, Bloomberg sources said.

The question remains whether the fund will be expanded to include financing for municipal housing development—a politically sensitive topic in German metropolitan areas. The fund's scope may be expanded after its launch.

The Commodity Fund, launched under the former Olaf Scholz government, is currently inactive and is expected to be incorporated into the new structure. It was established to invest in key mining projects in Germany and abroad.

Energy infrastructure is the main goal of the fund

The fund's primary focus will be energy infrastructure. Germany holds stakes in energy grid operators 50Hertz and TransnetBW and is considering purchasing the German assets of Dutch power company TenneT and part of Dortmund-based Amprion . The goal is to consolidate state control over electricity transmission networks.

Similar plans are being discussed in the defense industry and may also be included in the new fund. Berlin is negotiating a blocking minority stake in the Franco-German defense company KNDS and is in talks to acquire a stake in ThyssenKrupp's submarine division. The fund's portfolio is also expected to include smaller, early-stage investments in domestic startups in the defense industry.

In addition to strategic assets, the German Fund aims to strengthen domestic capital markets , where private companies are less willing to invest in higher-risk projects – especially in the case of smaller and medium-sized enterprises – thus limiting their potential.

The fund is designed as a hybrid instrument combining traditional government subsidies with market-based venture capital. Its structure frees up more resources, ensuring government acceptance by international investors.

Despite tensions between Merz's conservatives and Klingbeil's Social Democrats, the fund's financing is secure. The ruling coalition recently approved a €500 billion infrastructure spending package . Furthermore, because capital investments are treated as financial transactions, they bypass the country's constitutional debt brake .

This initiative fulfills a commitment signed as part of the coalition agreement that paved the way for the takeover in May. It will also be the first project signed by the new Minister of Economy, Katherina Reiche, a former executive director of the energy sector.