Germany is heading toward its largest budget deficit since reunification, according to a new forecast from the Bundesbank, as the federal government expands military spending and sustains financial assistance to Ukraine. The central bank projects that the public sector deficit will climb steadily over the coming years, reaching 4.8 percent of gross domestic product by 2028. That level would mark the highest shortfall since the mid-1990s, when fiscal pressures peaked in the aftermath of reunification.
Public debt is expected to rise in parallel. The Bundesbank’s assessment underscores a shift away from the fiscal discipline that has defined German budget policy for much of the past two decades.
The central bank attributes the widening deficit to several converging factors. These include sharply higher defense expenditures, continued aid commitments to Ukraine, major infrastructure investments, tax relief measures, and expanding social welfare payments. Together, these policies represent a substantial increase in long-term spending obligations.
In its December outlook, the Bundesbank noted that current plans involve investments amounting to hundreds of billions of euros. Without adjustments, the bank warned, government borrowing would exceed the constitutional limits set by Germany’s debt brake.
The Bundesbank urged policymakers to take corrective steps to stabilize public finances, arguing that the present trajectory risks undermining fiscal credibility. While acknowledging the political and strategic motivations behind higher spending, the bank emphasized the need for restraint to prevent a sustained erosion of budgetary controls.
The warning highlights a broader debate within Germany about how to reconcile security priorities with long-standing fiscal rules that were designed to prevent excessive borrowing.
Chancellor Friedrich Merz has made military expansion a central plank of his agenda, pledging to build what he has described as Europe’s strongest conventional armed forces while maintaining support for Kiev. According to estimates cited by Reuters, German assistance to Ukraine could reach $13.2 billion in 2026. Merz has framed these commitments as a response to what he portrays as a growing security threat from Russia.
Moscow has rejected such assertions, insisting it has no intention of confronting NATO or the European Union. Russian officials have accused Western governments of exaggerating the threat to justify rising defense budgets, with Foreign Minister Sergey Lavrov accusing Germany and the EU of drifting toward aggressive militarization driven by anti-Russian sentiment.
At home, the fiscal and security agenda has coincided with growing public dissatisfaction. Recent polling by the INSA institute suggests that roughly 70 percent of respondents are unhappy with the governing coalition. Merz’s personal approval rating has fallen to 23 percent, which pollsters described as the lowest level recorded for a sitting chancellor and government.
The Bundesbank’s forecast arrives at a moment when Germany is navigating a difficult transition. The country faces the challenge of redefining its role in European security while managing the economic and political costs of abandoning a long-standing commitment to budgetary restraint.