Germany is planning to increase the firepower of its national raw materials fund by as much as 50% to €1.5 billion, as Chancellor Friedrich Merz’s government moves to accelerate the diversification of critical mineral supply chains away from Chinese dominance and expand the vehicle’s potential scope toward a broader sovereign wealth fund.
Chancellor Merz’s coalition has agreed after months of internal wrangling to raise the fund’s cash resources by between €300 million and €500 million from 2027, according to people familiar with the matter. The fund, managed by state-owned lender KfW and forming part of Germany’s broader Germany Fund, takes equity stakes in and issues state guarantees for raw materials projects globally. Officials from both the finance and economy ministries confirmed the government intended to increase the fund’s capacity without providing further detail.
The agreement resolved a dispute between the two ministries over how much risk the state should assume in projects that frequently carry high default probabilities. Officials ultimately agreed that increasing the capital base would allow risks to be spread across a broader portfolio and enable the issuance of more guarantees per investment.
Coalition discussions also addressed the possibility of expanding the fund beyond commodities from 2028 onward to encompass domestic security, defence and infrastructure projects including power grids — or converting it into a full sovereign wealth fund. No agreement has been reached on that broader question and negotiations are continuing.
The fund has so far supported only two projects: a €150 million commitment to Vulcan Energy’s lithium extraction venture in Germany, which helped unlock approximately €2.2 billion in total investment, and up to €50 million for Arafura Rare Earths’ rare earth project in Australia. At least two additional investments are expected before the end of the year.
The additional funding requires parliamentary approval as part of the 2027 budget process in July and could still change. Officials considered exempting such investments from Germany’s constitutional borrowing cap on national security grounds, as has been done for defence spending, but that approach was shelved due to legal and constitutional obstacles. Fund resources are already treated outside the debt brake because they are booked through KfW as financial transactions.
Questions remain about the fund’s adequacy relative to its ambitions. Support is currently capped at roughly €150 million per project, even as the broader aim is to catalyse as much as €100 billion in investment.
