Germany is launching a new investment vehicle aimed at channelling up to €130 billion in private capital into higher-risk projects, as Berlin steps up efforts to revive Europe’s largest economy after years of stagnation.

According to a report by the Financial Times, the so-called “Germany Fund” (Deutschlandfonds) will be anchored within state development bank KfW and seeded with around €30 billion in public funding and loan guarantees. The initiative is designed to crowd in private equity and institutional investors to support sectors seen as critical to Germany’s long-term competitiveness.

The fund is expected to offer a range of investment vehicles targeting areas such as technology and defence start-ups, energy infrastructure, and critical raw materials, including projects that have struggled to secure traditional bank financing. An official announcement by Germany’s finance and economy ministers is scheduled for Thursday.

The move comes as Chancellor Friedrich Merz’s government attempts to pull the German economy out of a prolonged slowdown, driven by high energy costs, weakening industrial output, and intensifying competition from China in key export markets. Economic stagnation has also fed political discontent, with the far-right Alternative for Germany party making significant gains in recent elections.

Since taking office in May, Merz has outlined plans for more than €1 trillion in public spending over the next decade, aimed at upgrading Germany’s ageing infrastructure and strengthening its armed forces. However, government officials have stressed that public money alone will not be enough.

“We have done a lot in terms of unlocking funds for public infrastructure and the military, but Germany needs much more and we can’t just rely on public money,” economist and finance ministry adviser Jens Südekum told the Financial Times.

The Germany Fund is intended to reduce risk for private investors by providing debt financing and guarantees for projects banks have been reluctant to back, such as lithium mining developments and strategic industrial initiatives.

Interest from international investors is already emerging. According to people familiar with the discussions, US private equity groups including KKR and Apollo have recently held meetings with German officials to explore investment opportunities under the new framework.

The initiative has also been welcomed by Germany’s start-up community, which has long complained about limited access to growth capital at home. Verena Pausder, head of Germany’s start-up association, described the fund as a step in the right direction to prevent innovative firms from being forced to seek funding or listings abroad.

The Germany Fund forms part of a broader reform agenda being finalised by the Merz government, including measures to boost private investment in pensions and accelerate planning approvals for infrastructure projects. Further structural reforms to pensions and healthcare are expected next year, as Berlin seeks to restore competitiveness and long-term growth.