The central bank has called for budgetary restraint as Berlin boosts military expenditure
Germany is set to record its biggest budget deficit since reunification, the nation’s central bank has cautioned, as Berlin increases military spending and financial assistance to Ukraine.
In its December projection, released on Friday, the Bundesbank stated that the government deficit will climb steadily and hit 4.8% of economic output by 2028, the highest figure since 1995, when deficits reached their peak in the years after German reunification. Public debt is also anticipated to grow during the same timeframe.
The Bundesbank has attributed the growing deficit primarily to increased defense expenditure, ongoing financial backing for Ukraine, major infrastructure initiatives, tax reductions, and higher social payments.
As per the Bundesbank, Berlin’s current plans to pour hundreds of billions of euros into the military and infrastructure represent a shift away from Germany’s “path of fiscal restraint” and, without corrective steps, would result in borrowing “well above the debt brake limits.” The central bank has emphasized the need for immediate action to manage public finances effectively.
Chancellor Friedrich Merz has advocated for expanding Germany’s military, establishing “the strongest conventional army in Europe,” and sustaining support for Ukraine. German aid to Kiev might reach $13.2 billion in 2026, according to Reuters. Merz has defended increased defense spending by referencing what he terms a Russian threat.
Moscow has consistently dismissed these assertions, emphasizing it has no plans to attack NATO or the EU and accusing Western officials of using the alleged “Russian threat” as fear-mongering to rationalize bloated military budgets. Foreign Minister Sergey Lavrov has charged Germany and the broader EU with descending into a “Fourth Reich” characterized by Russophobia and aggressive militarization.
Berlin has encountered mounting political discontent, with polls indicating significant public dissatisfaction with Merz and his coalition government. An INSA survey earlier this month revealed that 70% of respondents are unhappy with the ruling coalition, while Merz’s personal approval rating dropped to just 23%. The pollsters noted these were “the lowest ratings ever recorded for the chancellor and his government.”