A number of the most prominent economists in Germany have warned that the country is heading towards a deep financial crisis in the coming years, considering that the current levels of spending and borrowing are no longer sustainable in the long term, in conjunction with the approval of the draft federal budget for 2027 with record numbers of spending and debt.
Clemens Fuest, head of the Ifo Institute for Economic Research in Munich, said in statements to the Welt am Sonntag newspaper scheduled to be published tomorrow, Sunday (November 15, 2026), that “the current budget policy cannot be continued permanently.”
Foust called on the ruling coalition between conservatives and social democrats to set clear priorities for spending when preparing the 2028 budget, noting that the areas of defense and infrastructure should be a priority.
He added that other expenditures should be frozen or reduced wherever possible, warning that increasing taxes would become inevitable if the political will to take austerity measures was not present.
A record budget and debt exceeding 200 billion euros
Yesterday, Friday (November 13), the Budget Committee of the German Parliament approved the draft federal budget for the year 2027 after negotiations that lasted about 16 hours.
According to the project, basic budget expenditures will rise to a record level of 561 billion euros, while net new loans will reach about 123 billion euros. The government also intends to finance additional expenditures through special funds, bringing the total new debt to about 210 billion euros.
Warnings of a worsening crisis after 2028
Achim Wambach, head of the Leibniz Center for European Economic Research (ZEW), believes that Germany's financial picture after 2028 appears bleaker than current economic recovery indicators reflect.
Wambach explained that interest rates are now higher than the economy's growth rate, which means that the country will not be able to reduce its debt burden through economic growth alone. He considered reforming social insurance systems an urgent priority, and also called for reducing government support that does not contribute to promoting growth. “Subsidies that do not contribute to promoting economic growth should be abolished,” he said.
For his part, economist Jens Boysen-Hoogrefe of the Institute for the World Economy in Kiel painted a similar picture, noting that any potential economic improvement would be temporary. He said: “There may be breathing periods in some years due to economic fluctuations and exceptional factors, but the general trend is clearly negative.”
He attributed this to structural factors, including the aging of German society and the high costs of debt service, adding that imposing additional financial burdens on citizens remains a possibility even with the adoption of a strict policy to control spending.
Audit Bureau: The situation can only be tolerated now
In turn, the head of the Federal Audit Office, Ansgar Heveling, called on the ruling coalition parties to make greater efforts to achieve financial stability. He told the Rheinische Post newspaper that the current situation "is still bearable, but not in the long term."
Hevelling criticized the government's increasing reliance on borrowing, explaining that about a third of federal spending is currently financed through debt, warning that interest payments will consume an increasing share of the budget in the coming years. He added that the percentage of spending allocated to debt service is likely to double by 2030.
Municipalities demand immediate aid
On the other hand, German municipalities called on the federal government to provide urgent financial support to confront the increasing pressures on their budgets.
Executive Director of the Federation of German Cities and Municipalities, Christian Schuchart, said that the new draft budget does not include any immediate financial aid to municipalities, despite the deterioration of their financial conditions.
The Union of Cities, along with the Union of Cities and Municipalities, calls for the allocation of 30 billion euros annually in urgent aid to local authorities until financial reforms are implemented to reduce their burdens.
Accusations of the government ignoring the crisis of local authorities
The Union of Municipalities also accused the government of ignoring the “dramatic” financial situation of local authorities, considering that the draft budget does not provide solutions that guarantee the continued ability of municipalities to perform their basic tasks.
The Union called for a comprehensive reform of the municipal financing system, which includes reducing administrative burdens, increasing their share of tax revenues, and reducing bureaucracy in a sustainable manner.
