* Finance minister says Germany must also improve competitiveness

* Still expects balanced budget next year, first since 1969

* Germany has slashed its growth forecasts for 2014/2015

* Defence budget may increase due to "geopolitical risks"

By Madeline Chambers

BERLIN, Oct 19 (Reuters) - German Finance Minister Wolfgang Schaeuble told a newspaper on Sunday that he wanted to increase investment spending and improve competitiveness in Europe's biggest economy but not at the expense of achieving a balanced budget next year.

A raft of gloomy economic data and expectations of a slowdown in German growth has contributed to jitters on world markets and Schaeuble is under pressure to spend on roads, railways, broadband networks and energy grids to help growth.

In an interview with the Welt am Sonntag, Schaeuble said criticism of the government on insufficient investment or lacking competitiveness was justified, but that Berlin was working on these at both the national and European levels.

"We must invest more and improve our competitiveness. We must get to work on this -- quickly and in a concrete way," Schaeuble told the paper.

"It will not all happen overnight. But we must work on certain things now, like the European digital union, the energy union or the sustainable maintaining of our infrastructure."

Hit by the effect of crises abroad, a weak euro zone and limp domestic demand, Germany has slashed its growth forecasts to 1.2 percent in 2014 from 1.8 percent and to 1.3 percent in 2015 from 2.0 percent.

But Schaeuble, who is known for his tough line on budget discipline, insisted Germany would not achieve growth on credit and that he still expected to reach a balanced budget next year for the first time since 1969.

"We must keep to what we have promised," he said.

In the medium term, the defence budget might be increased due to demands from international partners and "geopolitical risks", he said. Germany is arming Kurds in northern Iraq to help them fight Islamic State militants.

Schaeuble did not comment on the turmoil on world markets other than to say that talking up crisis scenarios did not help anyone and weaker economic developments reflected the changed situation in the world.

Asked if Greece should ditch hopes of exiting its bailout programme by the end of the year, he repeated his usual line.

"Greece must resolutely continue to implement the agreed reforms. In its own interests. Being reliable creates confidence - also on the markets," he said.

A sell-off in Greek bonds this week has led some investors to question whether Greece would indeed stick to a plan to emerge from the programme by the end of this year.

(Reporting by Madeline Chambers; Editing by Raissa Kasolowsky)