The Debt Germany Refuses to See

On 23 June 2026, Friedrich Merz told German industrialists that the country was losing between 300 and 500 jobs every day. A few days later, Volkswagen was considering tens of thousands of further job cuts.

To read these events as mere cyclical setbacks would be to miss the essential point, because they all stem from the same intellectual error. For twenty years, Germany believed it was protecting itself by limiting debt.

The harsh reality is that it did not eliminate that debt. It merely shifted it off its books.

The debt that appears on no balance sheet

That debt has accumulated in Germany’s poorly maintained railways, ageing bridges, lagging digital networks, excessively expensive energy, deteriorating schools and factories insufficiently prepared for technological upheaval. It appears neither in the Maastricht statistics nor in public debt ratios.

However well hidden — and, in the past, carefully concealed — Germany’s debt is still being repaid through lost productivity, bankruptcies, destroyed jobs and, ultimately, national decline.

A state can indeed reduce its deficit while weakening its real balance sheet, which consists of infrastructure, human capital, energy security and industrial capacity.

Germany contained its financial liabilities while allowing its collective assets to deteriorate.

When credibility becomes rigidity

Adopted in 2009, Germany’s constitutional debt brake responded at the time to a legitimate demand for credibility. It was intended to discipline public spending, guarantee the sustainability of the public finances and signal that Germany would not finance its weaknesses through fiscal profligacy.

There is no question that this discipline strengthened confidence and gave Berlin a particular authority within Europe.

Yet an instrument of credibility can quickly become an instrument of blindness when it is preserved at all costs after the economic cycle that justified it has disappeared.

Ultimately, the Schuldenbremse treated current expenditure and investment in the future in much the same way. It confused unproductive debt with reconstruction debt, and prudence with paralysis. Adopted to prevent the state from living beyond its means, it led Germany to live below its needs.

The IW and IMK institutes estimate that nearly €600 billion in additional public investment will be required over ten years to modernise infrastructure, strengthen education and local government, and deliver decarbonisation. This is simply the price of what was not undertaken yesterday.

A national policy of under-maintenance

The nationwide rail paralysis of 23 June offers a dramatic illustration. Germany, which once made punctuality a component of its economic identity, now depends on ageing communications equipment and a network plagued by delays, breakdowns and postponed maintenance.

Germany has consumed the public capital accumulated by previous generations while celebrating the restraint of its accounts. In the final analysis, its fiscal discipline has effectively operated as a national policy of under-maintenance.

The demographic wall

Germany’s invisible debt is not made only of concrete, rails and cables. It is also demographic. The figure is striking: by 2035, one quarter of the German population will be aged 67 or over. The country will therefore have to finance higher pension, healthcare and long-term care expenditure from a narrower contribution base, precisely when it must rebuild its productive apparatus.

In Germany, the investments of the future are already competing with the social commitments of the past.

That is the true intergenerational debt: fewer workers will have to repair the infrastructure, finance pensions and support the industrial transition. Yet postponing investment today in the name of ageing will only weaken the wealth that will be needed to pay tomorrow’s pensions.

What does the debt finance?

Germany’s problem, in short, lies in its inability to rank obligations that have all become urgent at once: reindustrialising, investing, decarbonising, rearming the country and financing an ageing population.

Borrowing to maintain essential infrastructure, finance energy capacity or support industrial transformation is not comparable to borrowing in order to preserve a rent or postpone reform.

The obsession with the amount of debt has, ultimately, obscured the decisive question: what does that debt finance?

Modern states measure financial debt with obsessive precision. Yet they seem unable to recognise the debt they incur when they fail to maintain their collective capital.

Germany did not ruin itself by spending too much. It weakened itself by believing that it could spend less than was required to preserve its power, while postponing the adaptation of its social contract.

That is its real crisis: not excessive debt, but an accumulation of debts it has refused to acknowledge.

A power declines when it is no longer capable of deciding what it must preserve, reform and finance.