Rating agencies warn on German debt ahead of 2027 budget debate

Rating agencies have expressed concerns about rising German interest costs in remarks to the Sunday edition of the Welt national newspaper before parliament starts debating the 2027 budget.

"Although Germany continues to benefit from comparatively favourable financing conditions, higher capital-market interest rates and increased borrowing are making debt servicing more expensive," Malgorzata Wegner, Germany expert at the rating agency Fitch, said.

Julian Zimmermann of European rating agency Scope concurred. "If a larger share of the budget has to be spent on interest payments, fewer funds are available for other policy priorities," he said.

"This increases the pressure to consolidate public finances and reduce deficits over the long term," Zimmermann added.

Warnings are also coming from Chancellor Friedrich Merz's conservative parliamentary alliance. "The ever-increasing interest payments will, over time, become our biggest problem," Christian Haase, the alliance's budget expert, said.

The Bundestag will begin debating the 2027 budget on Tuesday. The draft budget presented by Finance Minister Lars Klingbeil from Merz's junior coalition partner provides for total spending of €555.4 billion ($645 billion).

Net new borrowing of €118.7 billion is planned, compared with €98 billion in 2026. In addition, there will be new borrowing through special funds for infrastructure and the military. Overall, Germany's new borrowing in 2027 is expected to exceed €200 billion.

Mathias Middelberg, a senior member of Merz's Christian Democratic Union (CDU), has called spending cuts. "We are living far beyond our means. One in every three euros we spend is borrowed. We have to make much more stringent cuts," he told the Neue Osnabrücker Zeitung newspaper.