Germany’s fiscal problems are no longer confined to Berlin — they are now most visible in the country’s towns and cities, where local governments have recorded their worst deficit since reunification.
According to a DeStatis press release on Tuesday, municipal finances deteriorated sharply in 2025, with the deficit climbing to €31.9 billion, up from €24.8 billion the previous year. While revenues rose to €391.4 billion, an increase of 4.1 percent, spending grew even faster to €423.3 billion, widening the gap between income and expenditure to unprecedented levels.
The burden is being driven in large part by Germany’s major urban centers, including Berlin, Hamburg, and Bremen, where rising welfare obligations, personnel costs, and social spending are placing sustained pressure on already stretched budgets. Local authorities, which are responsible for delivering many front-line public services, are increasingly struggling to keep pace with growing demands — particularly in areas such as housing support, childcare, and social assistance.
This record deficit at the municipal level exposes a deeper structural issue within Germany’s federal system, where problems are often passed over by the federal or state level to local governments without the provision of adequate funds to solve them.
The crisis at the local level is mirrored across the broader public sector. Germany’s total government deficit reached €127.3 billion in 2025, an increase of €22.9 billion, or around 20 percent, compared to the previous year. It brings the country back to deficit levels last seen in 2022, when the country was emerging from the pandemic years.
The fiscal paradox is that the federal government is actually in receipt of larger tax revenues, but it is simply spending too much to break even. Government income rose to approximately €2.08 trillion, but total expenditure was €2.21 trillion. Public expenditure increased by 6 percent overall.
At the federal level, the deficit widened significantly to €85.4 billion. Federal spending increased to €658 billion, reflecting higher outlays on defense, infrastructure, and climate-related programs. Military procurement alone rose sharply, with spending reaching €39 billion, an increase of more than 23 percent.
Much of this expansion has been financed through increased borrowing, which in turn increases debt, with no guarantee that the federal government can spend itself into prosperity.
Despite these isolated improvements, the broader trajectory remains negative. Economists warn that the current fiscal path reflects deeper, long-term pressures on the German state, including rising social spending, demographic change, and increasing interest costs. The fact that deficits are widening even during a period of relatively strong revenues suggests that the problem lies not in insufficient income, but in the structure and growth of expenditure.
The return to energy-crisis levels of borrowing without an equivalent external trigger has intensified concerns about Germany’s fiscal sustainability. In 2019, before the pandemic, the country recorded a budget surplus of around €50 billion. Within just a few years, that position has reversed dramatically, with deficits now exceeding €127 billion.
After pensions and healthcare, welfare benefits are the next-largest spending item for the federal government, and many programs are running at record highs.
Immigrants comprise a disproportionately large percentage of those in receipt of welfare benefits. In November 2024, statistics from the Federal Employment Agency (BA), provided to Welt newspaper, showed that of the more than 4 million people who can work but receive social benefits, more than 2.5 million have a migration background, constituting 63.5 percent. This group included foreigners and those who have a foreign background, which means their parents may have been born abroad.
Similarly, nearly half of Germany’s €17.68 billion in housing support for 2024 was paid out to foreigners. Of the total, €8.15 billion went to people without German citizenship, even though they make up just around 15 percent of the population.
The remaining €9.53 billion went to German citizens — this included German-born individuals and those born elsewhere who have become naturalized.
DeStatis reported at the end of 2023 that 972,000 Syrians were living in Germany, around 1 in 20 of all Syrian nationals. Of those, 513,534 were in receipt of the German welfare benefit known as citizen’s money (Burgergeld).
More recently, it was revealed in February that over 70,000 migrants who had been told to leave the country remained in receipt of state welfare benefits. According to Germany’s Central Register of Foreigners, 235,485 people were required to leave the country but remained living in Germany.
Of that figure, 12,005 were subject to enforceable departure orders, while a further 58,705 had “tolerated status,” meaning they were legally obligated to leave the country but had extenuating circumstances. All were still in receipt of benefits under the Asylum Seekers’ Benefits Act.
The largest national groups among those required to leave were from Turkey, with 25,652 cases, followed by Iraq with 20,770, Afghanistan with 12,888, Russia with 11,938, and Syria with 10,718.
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