BERLIN, Jan 14 (Reuters) - Germany and its dominant railway operator Deutsche Bahn signed an agreement on Tuesday to invest 86 billion euros over the next 10 years to upgrade its network in the country’s “biggest modernisation project ever”.

The federal government will contribute 62 billion euros, it said, resulting in an average annual spend of 8.6 billion euros to renovate rails, stations, signalling control and power supply.

The plan is part of Germany’s efforts to step up measures to reduce carbon dioxide emissions for the fight against climate change.

The country has for years faced calls from its euro zone partners and the International Monetary Fund to increase public spending to help stimulate the economy of the bloc.

Germany has invested many billions of euros to upgrade its railway system after years of cutting costs related to a failed public listing of the state-owned company, which operates the railway network and the vast majority of long-distance trains.

The country’s reputation for running an efficient and punctual rail network has taken a knock in the last few years and bridges off major routes dating back to the era of the last German Emperor more than 100 years ago are urgently in need of repair.

Deutsche Bahn is also struggling with a declining market share in the freight sector.

The programme that was agreed represents a 54% increase from the 2015-2019 period, the government said.

“The 20s will be a golden era for the railway,” Transport Minister Andreas Scheuer said in a statement. (Reporting by Thomas Seythal; Editing by Alex Richardson)