Germany debt could hit 98% of GDP, economists warn

Germany's debt-to-GDP ratio could rise to as much as 98 percent by 2040 if the government does not rein in borrowing for defence spending, the country's independent council of economic experts warned Wednesday.

The council said defence spending is playing a major role in pressure on public finances, alongside other factors including welfare spending. Council member Achim Truger said it was not economically rational to finance defence spending of this scale permanently through debt.

Germany has exempted most defence spending from the constitutional debt brake, which limits most federal borrowing to 0.35 percent of GDP. The country is increasing military spending as it seeks to strengthen its armed forces amid a hostile Russia and concern over US security commitments to Europe.

Defence spending is set to rise to about 110 billion euros, or $122 billion, in 2027, with a large share financed through borrowing. The economists warned that, without action, Germany's debt-to-GDP ratio could rise from about 64 percent now to as much as 98 percent by 2040.

The council recommended partially rolling back the defence exemption from 2031 by gradually increasing the amount of defence spending financed through the regular budget. Truger said the proposed change would be manageable if spread over time.

The council also raised its growth forecast for this year to 1.3 percent, in line with the government's projection, and predicted growth of one percent next year.

Chancellor Friedrich Merz welcomed the growth forecast as good news, while saying the government shared the council's call for sound budget policy and stable public finances.