Germany to reach record deficit since reunification – Bundesbank

The central bank has urged budget restraint as Berlin ramps up military spending

Germany is on track to post its largest budget deficit since reunification, the country’s central bank has warned, as Berlin ramps up military spending and financial aid to Ukraine.

In its December forecast, published on Friday, the Bundesbank said the government shortfall will rise steadily and reach 4.8% of economic output by 2028, the highest level since 1995, when deficits peaked in the years following German reunification. Public debt is also expected to increase over the same period.

The Bundesbank has linked the rising deficit mainly to higher defense spending, continued financial support to Ukraine, large infrastructure projects, tax cuts, and increased social payments.

According to the Bundesbank, Berlin’s current plans to invest hundreds of billions of euros into the military and infrastructure mark a departure from Germany’s “course of fiscal restraint” and, without corrective measures, would leave borrowing “well above the limits of the debt brake.” The central bank has called for urgent action to keep public finances in check.

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Merz’s ‘stupid decisions’ led to Germany’s economic woes – Putin envoy

Chancellor Friedrich Merz has pushed to expand Germany’s military, build “the strongest conventional army in Europe,” and continue support for Ukraine. German aid to Kiev could reach $13.2 billion in 2026, according to Reuters. Merz has justified higher defense spending by citing what he describes as a Russian threat.

Moscow has repeatedly rejected such claims, stressing that it has no intention of attacking NATO or the EU and accusing Western officials of using the supposed “Russian threat” as fear-mongering to justify inflated military budgets. Foreign Minister Sergey Lavrov has accused Germany and the wider EU of sliding into a “Fourth Reich” marked by Russophobia and aggressive militarization.

Berlin has been faced with growing political discontent, with polls showing strong public dissatisfaction with Merz and his coalition government. An INSA survey earlier this month found that 70% of respondents are unhappy with the ruling coalition while Merz’s personal approval rating declined to just 23%. The pollsters noted these were “the worst ratings ever recorded for the chancellor and his government.”