Germany's Moment Of Fiscal Failure – Record €503BN Budget Passed

The Bundestag on Thursday passed the 2025 budget with the votes of the CDU, CSU, and SPD. The bottom line: record-breaking debt, serving only one purpose—patching the ever-widening fiscal holes.

With historic delay—blame the fractured “traffic light” chaos coalition—the Bundestag on Thursday passed the budget for the current year, now valid for little more than three months. Business had been running on autopilot until now. Yet this does not change the fact that with a spending volume of €503 billion, a new record has been set. The federal government is spending freely, cushioned by (still) growing tax revenues and ever-new debt.

Looking Ahead to Next Years Finances

Chancellor Friedrich Merz and Finance Minister Lars Klingbeil of the Social Democrats give the impression that they intend to further accelerate the spending pace next year. After a roughly four percent increase in this year‘s budget, next year’s growth rate is expected to be even higher: around €530 billion in planned spending. At the same time, additional transfers to social funds are likely to rise due to weak economic growth—the state is already deep in a debt spiral.

Against the backdrop of this dramatic growth in public-sector spending, which increasingly crowds out the private sector and has expanded the states share of the economy from 45 to 50 percent over the past five years, one must speak of total political failure. Since the lockdowns, federal spending has risen by over 41 percent, while the overall economy stagnated. This enormous imbalance shows that the ratio between productive forces and purely consumptive forces in the country has reached an irresponsible disequilibrium.

The state is expanding—elbowing its way forward. We are witnessing the accelerated construction of a socialist collective.

Uncontrolled New Debt

Chancellor Merz—who, some will recall, campaigned on fiscal discipline—will go down in history as the chancellor who fiscally ruined Germany. This year, cleverly hidden from public view in so-called special funds, new debt of €140 billion is planned. Germany thus violates all Maastricht criteria with new borrowing of around 3.3 percent and a final total debt of over 65 percent.

In doing so, Germany is gradually losing its role as a credit anchor for its equally indebted Eurozone partners.

And this concerns only federal debt. States and municipalities are facing their own Waterloo: with the economy still weak, municipal budgets could see a combined deficit of €36 billion this year—the crisis hits hard.

Yet reform is nowhere in sight. The chancellors ambitious „citizen income (Bürgergeld/ social assistance) initiative was abandoned by the Social Democrats, and naturally, there will be no structural reforms. Debates about immigration into the German social system are simply covered with new credit, citing the temporary slowdown in illegal immigration—a clear seasonal fluctuation.

This government has built its entire policy on a house of cards of lies and self-deception. In fiscal policy, this is reflected in special funds: here, new federal loans hide, either to finance a wartime economy or to plug social fund gaps. Ultimately, the taxpayer pays the price—through higher taxes or later through inflation when the central bank monetizes the added debt.

The debate about tax increases has long entered the public sphere—in the form of envy-driven discussions over higher inheritance taxes. That is where this journey is heading.

Reforms Are Torpedoed

The reason why fiscal policy has become a symbol of Germany‘s economic and societal failure is evident in two striking phenomena. First, the iron silence of the economic elites when it comes to the causes of Germany’s decline. High energy costs, grotesque regulation, and crushing taxation are acknowledged, yet no one dares tackle the ideological green transformation at its root.

The same applies to necessary social reforms: even the smallest attempt, such as introducing strict sanctions for work refusal under citizen income, is immediately torpedoed by numerous left-wing parties in the Bundestag and societal actors like the German Trade Union Confederation.

Spending Spree and Big Government

The union opposed stricter sanctions for citizen income and immediately positioned itself in fundamental opposition. Naturally, CDU attempts at social reform are little more than media shadowboxing.

It is clear: since the ideological restructuring under Merkel, the Union has long been converted into another party within the left spectrum of Germanys political landscape. The internal coalition climate is likely more harmonious than it appears. Essentially, there is agreement: they want the big state—convinced that only massive state activity, supported by a European Commission also indulging in a spending spree, can lead Germany out of its misery.

Looking Ahead

Where does this lead? Take a brief look at neighboring France. With a public debt of 114 percent and a state share of 57 percent, France is years ahead in the evolution of this drama. Reform-incompetent and politically stuck, it cannot enact necessary changes. A collision with market reality is inevitable.

Broadly speaking, EU member states suffer from the same disease: deep-rooted statism, the belief in a big state, ultimately intended to solve society‘s problems as a welfare entity and economic actor. History shows this is a fatal misconception. Germany’s economic collapse is already a product of an overextended state apparatus that not only paralyzes productive forces but actively destroys them with agenda-driven politics.

Fiscal indiscipline inevitably leads to collision with an iceberg in bond markets—no matter how much a central bank tries to cushion the blow. The moment a state—regardless of its debt ratio—can no longer roll over existing debt is the moment of truth.

Then either a politician steps in with fiscal chainsaws, or the political structure freezes into a command state, where even basic societal problems—like the migration crisis or emerging socialism—cannot be criticized.