In Berlin’s government district, a so-called loan clock hangs on an office building. Founded by the German Taxpayers Federation, a lobby organization advocating lower taxation and public spending, it is intended to serve as a reminder of Germany’s growing national debt.
Against the black display, the red numbers climb higher and higher every day. At 1:00 pm on July 6, the debt clock read €2.78 trillion ($3.18 trillion).
The draft budget for 2027, announced on Monday, will further increase debt levels. Germany’s Finance Minister, Lars Klingbeil of the center-left Social Democratic Party (SPD), estimates spending for 2027 will total €555.4 billion.
Of that amount, €109.7 billion is earmarked for defense spending, a third more than in 2026.
Because spending far exceeds tax revenues, Klingbeil’s plan, once again, calls for more borrowing – just under €119 billion. But this is far from the whole story.
Two special funds for infrastructure and military
Then there is also spending from debt-financed special funds, which act as a kind of shadow budget. Since these funds are spread over several years, they are not listed in the current budget.
The staggering €500 billion fund is earmarked for infrastructure maintenance and restoration and achieving Germany’s goal of becoming climate-neutral. The money, spread over 12 years, will be spent on repairing dilapidated bridges, roads and rail networks, among other things.
An additional special fund has also been established for the Bundeswehr, Germany’s armed forces. By 2029, Germany plans to gradually increase its defense spending to 3.5% of gross domestic product (GDP), a measure of economic output. It is expected to reach NATO’s new target of 5% by 2035.
Klingbiel justified Bundeswehr funds by citing Russia’s war in Ukraine. “[Russian President Vladimir] “Putin’s imperialist delusions pose a greater threat to peace in Europe than we have seen in a long time,” Klingbeil said after the cabinet meeting. “We can’t defend ourselves against Putin with a balanced budget.”
Instead, he said, Germany should compensate for the three decades in which defense spending was “cut” as quickly as possible. “It’s impossible to do this without taking on new debt – it’s like flying to the moon without a rocket.”
What about Germany’s debt break?
If borrowing from the regular budget is combined with special funds, new debt is projected to reach approximately €203 billion in 2027. In the coming years, this trend is expected to continue.
Based on the financial plan of the federal government, German Chamber of Commerce and Industry has calculated that spending will increase by an average of 5% per year until 2030. Meanwhile, tax revenues will grow only half as fast during the same period – that is, about 3% per year.
What’s more, the more debt the government accumulates, the more interest it will have to pay. By 2030, interest is expected to reach €80 billion, and approximately one in five euros of tax revenue could be spent on interest.
Yet the basic law, the German Constitution, stipulates that the government can only spend as much as it collects in revenue. This is known as the loan break. Additional borrowing cannot exceed 0.35% of gross domestic product (GDP).
Defense and security expenditure is largely exempted from the debt break, while economic recession allows higher debt limits. However, as Europe’s largest economy and the world’s third-largest, Germany can afford the debt, Klingbeil stressed. “Our debt levels are well below the Eurogroup average.”
In the Eurozone, debt is limited to no more than 60% of GDP. Germany’s debt will reach 69.5% in 2027.
Germany’s sluggish economy
What’s more, Germany is mired in a deep economic crisis and the economy is becoming weaker year by year. When it took office in May 2025, the federal government, composed of the conservative Christian Democratic Union (CDU)/Christian Social Union (CSU) and the center-left SPD, announced that it was going to revive the economy. However, the crisis persists.
“Donald Trump’s reckless war against Iran has halved our expected economic recovery this year,” Klingbeil complained in Berlin. “Germany is losing money from this war.”
Despite higher taxes, government cuts are sure to come
New sources of revenue are expected to come from the introduction of plastic tax, sugar tax and higher taxes on tobacco and alcohol. There are also plans to tax the rich – as Klingbeil calls it, “a tax on the super-rich”.
But this is just a drop in the proverbial bucket, and government cuts will inevitably have to come. This will impact not only the government’s own ministries and their budgets, but also the financial assistance provided by the federal government to support social security funds.
Pension and health insurance funds are notoriously cash-strapped and require billions of dollars in annual subsidies from the federal government. Those subsidies are now set to be reduced because no more money is available.
The German Trade Union Confederation is calling it a “huge imbalance” as social welfare benefits are being used to finance restructuring, while military spending is increasing dramatically.
Klingbeil also intends to attract the Climate and Change Fund (KTF), which is funded by revenues from the EU emissions trading system. This has been strongly criticized not only by environmental groups but also by the environmentalist Green Party. On Sunday evening, in an interview with the website table.media, Green Party leader Felix Banaszak said the money should not be misused to plug budget flaws.
German ministries face ‘tough decisions’
Klingbeil has demanded and continues to demand cuts across the board from all ministries. Only the Defense Ministry is exempted. In 2027, the cut was 1% of each ministry’s respective budget. A three percent cut in ministries is expected in 2028.
Ministries will therefore have less money at their disposal. Development aid in particular has been cut in recent years. In 2027, its budget will be cut by a further €500 million, bringing the total to €9.5 billion.
Finance Minister Klingbeil spoke of the “difficult decisions” that had been made. However, he said this would not change the fact that Germany remains a “really reliable partner” on the international stage. “After the US withdrawal from international development financing, we are now the largest donor.”
Meanwhile, children’s aid organization Save the Children called on the Bundestag to “significantly improve the draft budget during the parliamentary process and increase funding for humanitarian aid and development cooperation in line with real needs”.
After the summer recess, Parliament will begin deliberations on the draft budget in September. The 2027 budget is scheduled to be adopted in late November.
This article has been translated from German.