Germany‘s national debt is projected to surpass 80% of its gross domestic product by 2029, according to a report released Wednesday by the German Council of Economic Experts. The independant advisory body warned that without meaningful fiscal adjustments, Germany risks breaching constitutional debt limits and jeopardizing its long-term economic stability.
The escalating debt burden poses challenges for Europe’s largest economy as it navigates demographic shifts, the energy transition, and increased geopolitical uncertainty. The council’s assessment underscores the need for the German government to address structural fiscal weaknesses and prioritize lasting public finances, impacting future investment capacity and perhaps requiring austerity measures.
The report forecasts Germany’s debt-to-GDP ratio will climb from 66.3% in 2023 to over 80% by 2029, driven by increased spending on social security, defense, and climate protection.The council highlighted the impact of an aging population and the associated rise in pension costs as key factors contributing to the projected increase.
“Without considerable consolidation measures, public debt will continue to rise and could jeopardize the fiscal sustainability of the federal government,” the council stated in its annual report. It recommended measures to boost economic growth,control spending,and reform the tax system.
The council also cautioned against relying on special funds,such as the €200 billion energy price brake fund created in response to the energy crisis,to mask underlying fiscal problems. These funds, while providing short-term relief, contribute to long-term debt accumulation.
germany’s constitutionally enshrined “debt brake” – a rule limiting structural government deficits – has been suspended in recent years due to the COVID-19 pandemic and the energy crisis. The council emphasized the importance of reinstating and strengthening the debt brake to ensure fiscal discipline. the German government is currently debating how and when to return to the rule, with discussions focused on potential reforms to allow for greater investment versatility while maintaining fiscal stability.
