Germany plans €203.7 billion in new borrowing for 2027, its second-highest on record

Borrowing levels

German finance minister Lars Klingbeil (SPD) has tabled a draft 2027 federal budget with total new borrowing of €203.7 billion, up roughly €8 billion from the €196.5 billion foreseen in April’s key targets. The core budget alone plans net borrowing of €118.7 billion and expenditures of €555.4 billion. The remaining borrowing comes from two special funds: €54.9 billion for infrastructure and climate neutrality, and €30 billion for the Bundeswehr. For comparison, total borrowing stood at €50.5 billion in 2024 under the previous government before Berlin discarded its decades‑old fiscal conservatism.

The draft shows borrowing will stay above €200 billion each year through 2030, reaching almost €220 billion by the end of the decade. The cabinet is scheduled to adopt the budget and the medium‑term financial plan on Monday, July 6. Parliamentary deliberations are expected to conclude in November.

Defence and infrastructure spending

Defence outlays climb to around €109.7 billion in 2027, a figure that puts Germany on track to lift NATO spending to 3.5 % of GDP by 2029. The 2027 defence budget includes €11.6 billion earmarked for Ukraine. Overall federal investments – drawn from the core budget, the infrastructure special fund and the Climate and Transformation Fund – amount to €117.5 billion, slightly below the current year’s level.

Financing the gap

To close a funding shortfall that stood at €21 billion in April, Klingbeil imposed a 1 % saving target across ministries, which yielded €4 billion. Federal subsidies to social insurance are being trimmed and a new levy on plastics will be introduced. The government will also draw €6.8 billion from the reserve built during pre‑2019 boom years, leaving only €3.9 billion available for later years. Even so, Klingbeil’s own cabinet submission acknowledges a “need for action” (Handlungsbedarf) of €22 billion in 2028, €38 billion in 2029 and €47 billion in 2030.

Tax measures and cuts

Alcohol taxes, including those on sparkling wine and alcopops, will rise by 20 %. A tobacco‑tax increase is also planned, and a reform of crypto‑asset taxation is in preparation. Health‑ministry spending will shrink by 34 % compared with 2026. The Climate and Transformation Fund will see its financial assistance cut, and the additional federal grant to the statutory pension scheme will be reduced by €1 billion.

Labour market and reaction

The Federal Employment Agency will be able to balance its 2027 books only with a €5.2 billion bridging loan from the federal government. The draft notes that employment is set to drop by 100 000 persons in 2026 because of persistent economic weakness.

It raises the question whether Klingbeil still has control over the budget. Ministries are supposed to deliver vague efficiency gains, the reserve is being plundered contrary to all promises, investments are inflated artificially.

Interest costs are projected at €41.9 billion in 2027 and will climb further as the debt mountain grows.