EUR 144 billion. German government debt increased by this amount in the past year alone. For 2026, things do not look much different under SPD Finance Minister Lars Klingbeil. At the turn of the year, the debt stood at EUR 2.84 trillion. Mathematically, that corresponds to around EUR 34,000 per German citizen. No politician in Berlin will receive a bill for this amount. Nevertheless, it has to be paid – through taxes, contributions, inflation and a state budget in which more and more money will have to be earmarked for interest.
Government debt is not distributed equally among all residents: children, pensioners, employees and companies bear the burden in different ways, and the creditors themselves also differ. Banks, insurers, funds and private investors hold German government bonds and receive interest in return.
The bill therefore does not land in a single letterbox; it is spread over decades across the shoulders of working people. Today’s debt is the labour of future generations.
The mountain of debt is growing steadily again
According to figures from the Deutsche Bundesbank, German government debt rose by EUR 144 billion in 2025. The federal government, including its extra-budgetary funds, took on an additional EUR 107 billion of this amount. The federal states accounted for EUR 19 billion, and municipalities for EUR 25 billion.
| Metric | Value |
|---|---|
| Government debt at the end of 2025 | EUR 2.84 trillion |
| Increase compared with 2024 | EUR 144 billion |
| Debt ratio | 63.5% of GDP |
| Federal government including extra-budgetary funds | + EUR 107 billion |
| Federal states | + EUR 19 billion |
| Municipalities | + EUR 25 billion |
| Germany’s attributed share of EU debt | around EUR 118 billion |
Germany’s debt ratio therefore rose from 62.2% to 63.5% of gross domestic product. The European Union actually sets an upper limit of 60% for its member states. Germany has not fallen below this threshold since 2019. On the contrary: the curve is becoming increasingly steep.
The ratio alone, however, tells only half the story, because the debt ratio must always be related to economic output to have real significance. If nominal gross domestic product grows because prices are higher, the ratio can fall even while the state takes on more loans. Conversely, it rises faster when the economy is weak and new debt is incurred at the same time. The latter is currently the case.
There is also an important detail missing here: the annual deficit and the debt stock are not the same thing. According to the Federal Statistical Office, the general government Maastricht deficit was EUR 119 billion in 2025. The debt stock nevertheless grew by EUR 144 billion. The Bundesbank explains the difference by saying that some of the new loans were used to build up financial assets and therefore do not appear fully as a deficit.
Special funds hide the debt
Before the traffic-light coalition of the SPD, Greens and FDP officially came to an end, old majorities were used to give the incoming government more room for debt – “more investment” was the grand promise at the time. With so-called special funds, the largest part of the increase in debt no longer had to come from the federal government’s traditional core budget, but from all its extra-budgetary funds. For financing, however, it makes no difference whether a new federal road, a defence project or an infrastructure programme appears in the core budget or in a special fund. If a loan is taken out for it, interest is incurred.
The scale is particularly visible in the government draft for the 2027 federal budget: a total of around EUR 203.7 billion in new debt is planned for 2027, of which approximately EUR 118.7 billion is to go to the core budget and the remainder is to be reported as special funds. Although this budget has not yet been approved, it shows the direction in which fiscal policy is moving: new loans are no longer taken out only to close a short-term gap; they have become a fixed part of financing defence, infrastructure and other government tasks.
The interest bill starts immediately
The state does not have to repay the entire loan amount every year, because federal bonds run for different periods. New bonds also replace old ones, so the debt is continually rolled forward and shifted further into the future. If capital-market yields rise, this refinancing becomes more expensive. According to current budget plans, federal interest expenditure is expected to rise from around EUR 30 billion in 2026 to approximately EUR 42 billion in 2027. For 2030, more than EUR 80 billion is even expected.
| Year | Planned federal interest expenditure |
|---|---|
| 2026 | around EUR 30 billion |
| 2027 | around EUR 42 billion |
| 2030 | around EUR 81 billion |
Between 2026 and 2030, the annual interest bill would therefore increase by approximately EUR 51 billion. Mathematically, that corresponds to more than EUR 600 per resident per year. The EUR 51 billion needed for interest cannot be spent on other purposes at the same time. It does not finance a new school, a road or income-tax relief. The state can still increase spending, but only with additional loans or higher revenue.
Rising interest rates therefore hit the state twice. New loans become more expensive, while bonds that have already been issued lose value when newly issued bonds offer higher yields.
Government debt is an asset for others
For the state, debt is a liability; for buyers of a federal bond, it is an asset. Banks, insurers, pension funds, investment funds and foreign investors provide the state with capital and receive interest in return. Private savers can also become creditors of the state indirectly. Government bonds are held in bond funds, insurance contracts and retirement products. Some of the interest expenditure therefore flows back to private and institutional investors.
This creates a distribution issue: interest is paid from the state budget, which is funded mainly by taxes and social-security contributions. The revenue comes from employees, companies and consumers. The returns from the bonds, on the other hand, go to those who provide the capital.
Four ways the mountain of debt reaches private households
The first way is higher taxes. If interest expenditure rises and revenue does not keep pace, the state can place a heavier burden on income, consumption or certain goods. The government draft for 2027 already contains plans for higher alcohol and tobacco taxes. A plastic levy and new taxation of crypto assets are also planned.
The second way is through social insurance. The state can increase subsidies for pension, health or long-term-care insurance and take on new debt to pay for them. It can limit the subsidies and allow contribution rates to rise. For employees, this makes a difference in the label on the payslip, but not in disposable income.
The third way is inflation. When prices and wages rise, the existing mountain of debt loses value in real terms. This relieves the state, while households with cash, low savings rates or long-term fixed incomes steadily lose purchasing power. The state does not repay its debt with worthless money, but with money that can buy less.
The fourth way is initially the least noticeable: declining financial room for manoeuvre. Interest payments come before many political promises in the budget. If they claim a larger share of revenue, fewer funds remain for investment, tax cuts and new social benefits. This is not necessarily visible in a single new charge. It can also appear as higher fees, postponed projects or relief measures that fail to materialise.
Not every loan is bad
Government debt cannot be assessed by its size alone. A loan that finances a productive investment can bring economic benefits later. A refurbished railway line, a capable electricity grid or a modern administration can strengthen growth and enable future revenue.
The situation is different when loans permanently finance ongoing expenditure. Then no asset remains that later generates additional revenue or reduces costs. The interest still has to be paid. The important question should therefore not be whether the German state takes on new debt, but rather what the money is used for. Are investments being financed that will pay for themselves over the long term, or are structural budget holes being concealed because cutting expenditure is uncomfortable?
What investors feel from rising government debt
Rising government debt reaches private portfolios through the bond market. When investors demand higher yields for new federal bonds, the prices of bonds that have already been issued initially fall. Anyone who has to sell such securities before maturity can suffer a price loss as a result. Individual shares are not unaffected either. Higher yields on safer bonds change the valuation of future company profits. Investments in companies then have to promise a higher return so that the additional risk compared with a government bond is justified.
Inflation is an additional factor for savers. A nominally positive return is not enough if prices rise faster. 2% interest on an account with an inflation rate of 3% means a real loss of purchasing power of approximately 1% before tax. In the end, it is therefore always the net taxpayer and above all the next generation who will have to pay down the mountain of debt.
