Germany’s public finances drift deeper into the red

Germany’s public accounts have managed a neat feat: every major level of government ended the first half of 2026 in the red. The overall deficit of the public sector rose by 70 percent to 98.8 billion euros, after revenues of 1,011.8 billion euros were met by spending of 1,110.6 billion euros. Revenues increased only modestly, by around two percent, while expenditure climbed by roughly six percent. The arithmetic is not exactly flattering.

The sharpest deterioration came from Berlin. According to the Statistisches Bundesamt, the federal deficit more than doubled from 30.0 billion euros to 72.3 billion euros. Federal spending rose by 9.8 percent to 325.5 billion euros, while revenues fell by 5.0 percent to 253.1 billion euros. The office pointed to the lower electricity tax, the temporary fuel tax rebate and a slump in tobacco tax receipts as key reasons; together, these measures cost the federal budget about 3.3 billion euros. The last time federal revenues fell more sharply against the previous year was in the first half of 2020, when the pandemic distorted almost everything.

The municipalities are no longer a side story. Their deficit remained at 20.1 billion euros, matching the record level of the previous year and marking the highest figure for a first half-year since reunification. Revenues rose to 184.0 billion euros, up 3.0 percent, while spending increased to 204.1 billion euros, up 2.7 percent. In other words, local government is still trapped in the same expensive loop, only with worse numbers.

The Länder also slipped further into deficit, posting a shortfall of 6.3 billion euros after 2.4 billion euros a year earlier. Bavaria, Saxony, Schleswig-Holstein and Thuringia were the exceptions, closing the period with a surplus. The social insurance system came closest to balance, ending with a minus of just 68 million euros. Its revenues rose to 491.3 billion euros, while expenditure reached 491.4 billion euros. That figure includes federal loans of 10.2 billion euros to the Federal Employment Agency, long-term care insurance and the health fund.

One item deserves special attention: interest spending. It rose by 21.2 percent to 31.2 billion euros across the general government budget. At the same time, investment in tangible assets stood still at 43.1 billion euros. So the state is paying more for past borrowing, while not exactly building much for the future. That is a familiar pattern, and not a flattering one.

Written by Freya Stensrud freya.stensrud@alpineweekly.com