Business · Economy · 8 hrs ago
German economic council warns debt could near 100% of GDP by 2040
Germany’s Council of Economic Experts warned that public debt could become unsustainable if the government keeps its current fiscal policies.
Under current rules, the government can borrow to fund military spending above 1% of gross domestic product.
The council says debt could reach 98% of GDP by 2040 if this approach continues.
It proposes gradually reducing borrowing for defence, which it says would bring the debt ratio to a peak of 87% in 2037 before it falls.
To cover the resulting budget gap, the council recommends cutting subsidies and some social benefits, along with reducing federal staff costs.
It says tax increases should be a last resort, and the government faces difficult choices as it prepares its 2027 budget.
Germany’s Council of Economic Experts warns that public debt could reach 98% of GDP by 2040 if defence spending above 1% of GDP continues to be financed through borrowing.
The council recommends gradually reducing this borrowing and says the government must take immediate steps to consolidate public finances.
It proposes cutting environmentally harmful subsidies and some social spending, among other measures, to reduce the budget gap.
Council chair Monika Schnitzer says permanently financing defence spending through additional debt is not sustainable.
Council member Veronika Grimm argues in a minority opinion that spending restraint should come before tax increases.
- Who
- Germany’s Council of Economic Experts, which includes chair Monika Schnitzer, issued the warning.
- What
- It warned that public debt could reach 98% of GDP by 2040 under the current approach to borrowing for defence spending.
- When
- The council presented its annual report on Wednesday, 11 November 2026.
- Where
- Berlin.
- Why
- The council says crisis-related spending, higher subsidies and social insurance benefits, as well as rising interest and defence costs, are putting pressure on public finances.
Council majority
Veronika Grimm
Tax increases
Council majority
The council says tax increases should be a last resort, after other consolidation measures.
Veronika Grimm
Grimm warns that higher taxes could slow economic growth and weaken pressure for structural reforms.
Budget consolidation
Council majority
The council proposes spending cuts and other measures, while listing tax options if needed.
Veronika Grimm
Grimm says consolidation should first focus on containing public spending, including a binding target to reduce spending relative to GDP.
The Council of Economic Experts presented its annual report in Berlin.
The Bundestag’s budget committee was due to begin its final deliberations on the 2027 federal budget.
The council proposes beginning to raise the threshold for defence spending that can be financed through borrowing by 0.25 percentage points each year.
Under the council’s proposed change, the debt ratio would peak at 87% of GDP and then fall.
If the current borrowing approach continues, public debt could reach 98% of GDP.
- Projected debt ratio
- Up to 98% of GDP by 2040 under the current approach
- Defence borrowing threshold
- Spending above 1% of GDP can currently be financed through borrowing
- Proposed threshold change
- Raise the threshold by 0.25 percentage points annually from 2031
- Debt peak under proposal
- 87% of GDP in 2037
- Potential consolidation
- 2.2% of GDP from the council’s recommended measures
3 sources
What people are saying
Die Verteidigungsausgaben dauerhaft über zusätzliche Schulden zu finanzieren, sei «nicht tragfähig»
Diese Regel sollte durch eine entsprechende Änderung der Verfassung «grundgesetzlich verankert werden»
höhere Steuern das Wachstum der Wirtschaft bremsen und die Probleme des Standorts verschärfen