(de-news.net) – Germany’s Finance Minister Lars Klingbeil (SPD) has explained moderately higher public borrowing as a preventive measure against long-term fiscal costs while emphasizing compliance with EU fiscal rules and relatively low debt levels compared to the eurozone average. The Stability Council warns of rising deficits and debt in the coming years amid weak growth and inflationary pressures linked to external shocks, calling for structural reforms and targeted investment. Political debate intensifies around income tax reform and municipal financing pressures, with calls for a more unified national reform package.
In order to avoid more costly long-term fiscal repercussions, Klingbeil has defended a somewhat higher level of public borrowing as a preventive fiscal strategy aimed at mitigating future budgetary risks. He underscored that Germany had complied with the net expenditure growth cap in the previous year and, following a Stability Council meeting in Berlin, remained fully aligned with applicable European fiscal regulations in the current year as well. According to official data, the debt-to-GDP ratio stood at 63.5 percent in 2025, which remains significantly below the eurozone average of 87.8 percent, a point he highlighted as evidence of relative fiscal space.
Additionally, Klingbeil stated that the Federal Government intends to intensify efforts on an income tax reform that the finance ministry is expected to present, emphasizing in this context the broader necessity of structural reforms alongside targeted public investment to sustain economic activity and safeguard employment levels. He also linked the Iran war, together with the resulting shocks in global oil prices, to the prevailing economic difficulties, noting that these external pressures have further constrained already weakened growth conditions.
Sustainability concerns intensify
The need for reforms that simultaneously strengthen growth dynamics and reinforce budgetary stability was reiterated by the Stability Council, which was jointly chaired by Klingbeil and Bremen Finance Senator Björn Fecker (Greens). Preliminary assessments indicated that the established expenditure restrictions for both 2025 and 2026 are likely to be met, though under increasingly constrained macroeconomic conditions. The Council’s analysis focused in particular on compliance with Germany’s national medium-term net expenditure framework, which serves as a central fiscal planning instrument. At the same time, the broader macroeconomic outlook was characterized as challenging, primarily due to subdued growth momentum and rising inflationary pressures associated with the Iran war and its global spillover effects.
Within this context, the Council warned that the public debt ratio is projected to rise from 63.5 percent in 2025 to approximately 66.5 percent in 2026, while the general government deficit could exceed the EU Maastricht threshold of 3.0 percent of GDP in 2026. In response, it called for more decisive and far-reaching reforms to ensure long-term fiscal sustainability. Klingbeil, for his part, emphasized the strategic importance of sustained investment in defense, modernization, infrastructure, and internal security as key pillars for maintaining economic resilience. While North Rhine-Westphalia Finance Minister Marcus Optendrenk (CDU) stressed the necessity of structural adjustments on the expenditure side to stabilize and ultimately reduce debt dynamics, Fecker drew attention to the increasing fiscal pressure on municipalities and called for stronger financial support from the federal level.
Meanwhile, SPD General Secretary Tim Klüssendorf advocated for a comprehensive reform package to be developed through coordinated negotiations involving trade unions, business associations, and broader social partners, ideally within an intensive and consolidated negotiation framework. He argued that the politically and socially exhausting nature of fragmented policymaking has reinforced the need for a more unified and broadly supported reform strategy. At the same time, Klüssendorf suggested that the previously blocked “relief premium” should be effectively abandoned in favor of prioritizing rapid progress on income tax reform, which Klingbeil is expected to present in the near term. He also questioned the internal consistency of Bavaria’s position within its governing coalition, criticizing Bavarian Prime Minister Markus Söder for opposing the measure in the Bundesrat despite having previously supported it during earlier stages of negotiation.
Audio: TTSFree
