Germany’s federal government is facing scrutiny over its escalating debt levels, with concerns mounting that the substantial credit it has authorized may be jeopardized. As of December 31, 2024, the federal government had accumulated debts totaling €1.6911 trillion, a figure that increased by the end of January 2025, according to the Federal Ministry of Finance.
The government’s borrowing is intended to finance both the federal budget and various special funds, including the Financial Market Stabilization Fund (FMS), the Economic Stabilization Fund (WSF), the Investment and Redemption Fund (ITF), and the Special Fund for the Bundeswehr (SV BW). The legal framework governing credit for the FMS and WSF is outlined in the Stabilization Fund Act (StFG).
A significant portion of the federal government’s borrowing involves channeling funds through the FMS and WSF to public-law institutions as loans, a practice intended to leverage the federal government’s lower refinancing conditions. This “loan financing” aims to reduce costs, but the overall debt trajectory is drawing attention.
Recent legislative action has expanded financial possibilities for Germany’s states. On October 17, 2025, the German cabinet adopted a law regulating the distribution of €100 billion in funds to the states, intended for investments in areas such as schools, transportation, and healthcare. This law also removed restrictions previously preventing states from taking on “structural loans,” a privilege previously reserved for the federal government.
The move to allow states to increase borrowing comes as the federal government itself faces criticism regarding its debt levels. According to a report from September 18, 2025, nearly one-third of the federal budget for 2026 is projected to be financed through borrowing, a situation flagged by the Federal Audit Office.
The new infrastructure financing law requires banks and credit institutions to verify the names of payment recipients against their IBANs when processing SEPA transfers, effective October 9, 2025. The BVA (Federal Administration Office) has instructed recipients of educational loans to employ “Bundeskasse” as the payment recipient to avoid discrepancies.
