Germany isn’t just trimming fat. It’s carving through bone.
The finance ministry just admitted there’s a €17 billion shortfall in the 2025 budget. And the kicker? That’s while the economy is barely crawling forward, with growth projections stuck at a sad 0.7% according to the OECD.
New finance minister Lars Klingbeil has walked into a political blender. He took over in May 2025, right after Olaf Scholz’s coalition fell apart late last year. Klingbeil isn’t an economist. He made his name in defense policy. Now he’s balancing spreadsheets the size of small countries.
The cabinet is supposed to approve the 2025 draft on June 25. But the hole isn’t small, and the math is getting creative. The government is trying to close the gap with tricks like reclassifying interest payments and reallocating unused funds from the energy subsidies set aside during the 2022 gas price crisis, as reported by Reuters.
Meanwhile, all ministries were told to cut back. Defense? Exempt. A newly carved-out €500 billion infrastructure fund? Also untouched. So the real squeeze is hitting everything else.
Germany’s constitutional “debt brake” caps structural deficits at 0.35% of GDP. But in March 2025, lawmakers pushed through reforms to make room for bigger defense budgets and that massive infrastructure package. According to Bruegel, anything above 1% of GDP for defense is now off the books.
Translation? The rules got rewritten so Berlin could spend big while pretending to stay frugal.
Now pair that with weak GDP growth and falling tax revenues. Just days ago, the finance ministry slashed its tax revenue forecast through 2029 by over €80 billion, as covered by Reuters.
And inflation? It dropped to 2.1% in April 2025, the lowest in months. That might sound good on paper, but it also means less tax income from rising prices.
| Metric | 2024 | 2025 (Projected) |
|---|---|---|
| GDP Growth | 0.9% | 0.7% |
| Budget Shortfall | €12B | €17B |
| Inflation Rate | 3.2% | 2.1% |
| Tax Revenue Forecast (2025–2029) | — | -€80B |
Klingbeil is also pushing ministries to find additional savings for 2026. That draft is expected in July, and the parliamentary showdown begins in September.
The infrastructure fund is still the golden child. It’s supposed to stretch across the next 12 years, pouring money into everything from roads and hospitals to energy and digital systems. But critics argue it’s a bandage, not a cure.
German media have already labeled this “the tightrope budget.” Public sentiment? Mixed at best. Many Germans are frustrated that basic services might get slashed while defense and big projects stay fat and happy.
Germany is betting big. But it’s betting while limping.
If growth misses targets again, Berlin will have to make hard calls—raise taxes, kill off infrastructure dreams, or bend the fiscal rules even further. None of those are clean plays.
A sluggish economy. A government running on provisional cash. And a finance chief playing fiscal Jenga.
The bottom line? If Germany stumbles, the ripple hits the eurozone. And right now, the floor’s already shaking.
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