Economists warn of severe budget crisis in Germany starting in 2028

Economists predict Germany is on the brink of a severe budget crisis starting in 2028. Clemens Fuest, president of the ifo Institute in Munich, stated, "This budget policy cannot be sustained in the long term." The ruling coalition, consisting of Chancellor Friedrich Merz's conservative Christian Democratic Union (CDU), its Bavarian sister party, the Christian Social Union (CSU), and the Social Democrats (SPD), must prioritize spending for the 2028 federal budget.

Fuest advised freezing or cutting all other spending if necessary. Tax increases may become unavoidable if the coalition refuses to make such cuts.

The Bundestag's budget committee approved a provisional 2027 federal budget after 16 hours of negotiations. Core budget spending soared to a record 561 billion euros ($618 billion), while net borrowing reached nearly 123 billion euros within the core budget alone. Supplemental loans from special funds accounted for billions more, resulting in an overall debt increase of around 210 billion euros.

Achim Wambach, president of the Leibniz Centre for European Economic Research (ZEW), expressed more dire concerns about the situation by 2028. He emphasized that the interest rate surpasses Germany's economic growth rate, making it impossible for the state to grow its way out of debt. Wambach stressed that welfare reform should be the top priority, and unproductive subsidies must be eliminated.

Jens Boysen-Hogrefe of the Kiel Institute for the World Economy echoed these sentiments, noting that despite potential short-term breathing spaces due to economic fluctuations and special effects, the overall trend is negative. This is primarily due to an aging population and rising interest payments. Boysen-Hogrefe warned that additional levies may be necessary, even with strict spending discipline.

Ansgar Heveling, president of the Bundesrechnungshof (federal audit court), called for a more substantial push towards budget consolidation in the coalition. He acknowledged that Germany can currently handle the situation, but not in the long term. Heveling pointed out that every third euro spent by the government is financed through borrowing. He warned that with interest spending in the federal budget set to double by 2030, the nation is living beyond its means.