Berlin’s €203 Billion Debt Detour

Germany's federal auditors warned parliament on 3 September that the government is moving towards a debt trap. Federal debt could double from roughly €1.5 trillion at the end of 2020 to at least €3 trillion by 2030 if Berlin carries out its current spending plans (FAZ, Bundestag).

For Malta, this is not a distant German bookkeeping row. Germany is Europe's largest economy, the eurozone's main safe borrower, and one of the countries that writes the biggest cheques into the EU budget. If Berlin borrows heavily for its own defence and infrastructure while pushing to cut roughly €400 billion from the next EU budget, the consequence is simple enough: less room for European spending that smaller states rely on (Investir/Les Echos).

How €200 billion a year slips past the debt brake

The Bundesrechnungshof, Germany's federal audit office, is not forecasting a sovereign debt crisis. It is pointing to the mechanism: borrowing is being routed around Germany's debt brake, the constitutional rule that limits the federal structural deficit to 0.35% of GDP (Bundestag).

That rule was designed to stop ordinary budgets from carrying large deficits. A constitutional amendment in March 2025 opened two large exceptions. Defence spending above 1% of GDP no longer counts towards the cap. A new €500 billion infrastructure and climate fund can also borrow in its own name over twelve years (BMF).

The borrowing curve is steep. Core federal net borrowing rises from €98 billion in 2026 to €167.3 billion in 2030. In 2027 alone, combined new borrowing reaches roughly €203 billion once special funds are included (Bundestag, Onvista/Reuters).

The interest bill shows when borrowing stops being an accounting device and starts crowding out choices. The government's own projections put interest spending at €80.7 billion by 2030, out of total federal spending of €635.4 billion (Bundestag). Around one euro in eight would go on debt service before Berlin can pay for schools, rail, tax cuts or anything else.

Borrowed money, unbuilt bridges

There is a serious case for borrowing. The Bundesbank has said Germany's net fixed investment turned negative in 2024 and 2025 for the first time since reunification. In plain terms, Germany was wearing out roads, railways and energy grids faster than it was replacing them (Bundesbank).

But voting debt is easier than building infrastructure. The ifo Institute found that in 2025 the government borrowed €24.3 billion through the infrastructure fund while federal investment rose by only €1.3 billion (ifo). Most of the new borrowing replaced money the budget would have spent anyway, instead of adding new capacity.

Zeit reported that only around 10% of the infrastructure fund has been used so far (Zeit). The Finance Ministry says the fund should be judged over 2025–2028, not on its first phase alone (BMF). That may turn out to be fair. For now, it is still a promise rather than a result.

Who pays across Europe

When Germany borrows more, the price of borrowing can rise across the eurozone. German government bonds are the benchmark for safe debt in Europe. If that benchmark moves up, investors tend to demand more from other governments too.

German 10-year yields have already moved above 3.36%, reaching 15-year highs (Euronews, Le Monde). France, with public debt at 115.6% of GDP, is already under an EU excessive-deficit procedure, the formal process that pushes governments with oversized deficits to cut spending or raise taxes (Insee). Its Senate estimates that France's contribution to the next EU budget could rise from €26 billion to €36 billion a year (Sénat).

That matters in Malta because EU budget fights are domestic politics for small states. Cohesion funds, the EU money used to narrow development gaps between regions, have paid for infrastructure that people can see from Il-Belt to the harbour towns. A tighter EU budget is not an abstract Brussels exercise; it changes what can be financed, and who has to pay instead.

The political pressure is already landing on the next seven-year EU spending plan for 2028–2034, which the Commission has proposed at around €2 trillion (European Commission). Six net-contributor countries, including Germany and the Netherlands, want deep cuts (NOS). Poland fears that German budget pressure will mean cuts to cohesion funds. It also sends about 28% of its exports to Germany, so German stagnation quickly becomes a problem for Polish producers (Rzeczpospolita).

Germany's partners now have evidence for a suspicion that has been building for some time: Berlin can find fiscal space for German priorities faster than it can find it for shared European ones. The answer depends on what the auditors' report cannot yet show: whether the infrastructure fund becomes real investment, or remains a way to put old spending under a new debt label.