Germany's 2027 budget: A record €561 billion and a mountain of debt

It was 5:55 a.m. on Friday morning when the Bundestag's Budget Committee concluded its final session. Following nearly 16 hours of negotiations, lawmakers from the conservative Christian Democratic Union(CDU) and Christian Social Union (CSU) parties, along with their coalition partners from the center-left Social Democratic Party (SPD), voted in favor of the 2027 draft budget. The opposition parties — the environmentalist Greens, the socialist Left Party and the far-right Alternative for Germany (AfD) — voted against it. With that, the way is now clear for the final vote in the Bundestag on November 27.

Reading through the nearly 1,000-page document requires a great deal of number-crunching. Next year, the federal government plans to spend around €561 billion ($620 billion). But here's the problem: it won't collect nearly enough revenue to cover these expenses. With a shortfall of €123 billion, borrowing will be needed to bridge the gap.

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But that's not the only problem. On top of all this debt, Germany also has loans for defense spending and for the renovation of the dilapidated infrastructure. Approved by the Bundestag in 2025, these special funds are set to be in place for multiple years.

If the new debt for 2027 is factored in, the total borrowing amounts to over €210 billion. This is the second-highest level of borrowing in the history of the Federal Republic of Germany. The only time Germany borrowed more was during the COVID-19 pandemic in 2021, when borrowing reached €215.4 billion.

This has drawn sharp criticism from opposition parties. Green Party lawmaker Sebastian Schäfer and his colleague Dietmar Bartsch of the Left Party spoke of a "gigantic mountain of debt," an "untrustworthy" budget, "irresponsible" policies at the expense of future generations and a lack of future prospects.

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Why is debt growing? Crises drive up costs

To understand the reasons behind the growing debt, one has to look beyond the numbers. Every federal budget is a snapshot of the priorities a government and a country set — in terms of the economy, social issues, security and geopolitics.

For 2027, that story continues to be one of crises and wars. While Russia's war against Ukraine is driving up defense spending, the faltering economy is also demanding new investments. At the same time, Germany's population is aging rapidly, which is driving up social spending.

What's more, the crumbling infrastructure must be repaired and modernized, and the energy transition is costing billions. And more than half of all this debt is going toward security and defense.

Defense spending continues to rise

Russia's war against Ukraine will enter its sixth year in 2027. As of the end of June 2026, the federal government estimated its overall support for Ukraine to have reached approximately €100 billion. In response to a request from the AfD in the Bundestag, the government stated: "The federal government will continue to provide Ukraine with political, financial, humanitarian, civil and military support for as long as necessary."

The rearmament of the Bundeswehr and spending on NATO are also putting massive pressure on the budget. The defense budget is set to grow to just under €110 billion in 2027, an increase of around €27 billion compared to last year. Added to this are expenditures from the Bundeswehr's special fund.

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The largest item in the budget: social spending and pensions

Nevertheless, by far the largest single budget item comes from the Ministry of Labor and Social Affairs, which is set to grow to over €200 billion. There are plans for cost-cutting measures, for example, in basic income support for job seekers. But the costs of old-age pension benefits continue to rise. People born in the 1960s have begun to retire. Back then, more than one million children were born each year. But birth rates nearly halved in the early 1970s and have continued to decline since then. As a result, there will be an increasing number of retirees and a decreasing number of working-age individuals in the coming years.

The pension funds cannot be financed by the pension contributions of this dwindling workforce and have to be subsidized by the government. Already, contributions to the pension insurance system — which are split equally between employees and employers — will have to be increased. They are expected to rise to just under 20% of gross salary.

The Federal Employment Agency, too, has long been unable to make ends meet on contributions alone. In 2027, subsidies of more than €8 billion from the federal budget are planned.

Germany is no longer a model of fiscal discipline

Anyone comparing Germany's current budget situation with that of past years will be rubbing their eyes in disbelief. It wasn't that long ago that Germany was considered a model of fiscal discipline. Between 2014 and 2019, the federal budget managed to avoid taking on new debt for six consecutive years. In some years, there was even money left over.

But the era of "balanced budgets" came to an abrupt end with the COVID-19 pandemic in 2020. However, today Germany is still enjoying the benefits of those years of fiscal stability. Compared to other countries, Germany is still in relatively good shape.

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Economic experts warn of rising debt

The key indicator is not the amount of debt along but the debt-to-GDP ratio. It indicates how high the national debt is in relation to annual economic output.

At the end of 2025, it stood at 63.5% for Germany. France, on the other hand, stands at over 110% and Italy at about 135% to 140%, while the US is well above 100%. However, in its latest fall report, the German Council of Economic Experts warned that Germany could be heading down a dangerous path. If debt continues to rise at this rate, the debt-to-GDP ratio could climb to 100% by 2040.

This would also put Germany's creditworthiness on the financial markets at risk. Germany is the only country among the seven leading democratic industrialized nations (G7) that still holds a triple-A (AAA) rating. This is the highest possible credit rating on the financial markets. It signals to investors that the risk of default on German government bonds is extremely low.

This also means that interest rates on new loans are not set as high. This is an important point, as interest payments place an increasing burden on the federal budget each year. By 2027, approximately €42 billion in interest payments are expected to be due.

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The road ahead

At the end of November, the Bundestag will hold its final debate on the draft budget. Should changes be expected by then? There is disagreement within the government over whether a reduction in the electricity tax might still be possible.

The prospect of such a reduction had been raised by Chancellor Friedrich Merz. On Friday, during his visit to Dublin, he reiterated: "I expect that we will discuss this again next Tuesday in the coalition committee, and I remain committed to my goal of lowering the electricity tax to the European minimum — in full — starting next year."