German municipalities hit historic €32 billion deficit, debt approaches €200 billion

National record deficit

German municipalities posted a combined deficit of €31.9 billion in 2025, the highest shortfall since data began, according to the Bertelsmann Stiftung's municipal financial report published on Thursday. The total debt of cities, counties and municipalities climbed to nearly €200 billion, another record. Already in April, the Federal Statistical Office had flagged the record deficit.

The authors pinpoint spending as the main driver, chiefly rising personnel and social welfare costs, coupled with a sluggish economy that cut into local tax receipts. Business tax revenues, the most important source of income for municipalities, fell sharply in export-dependent states like Baden-Württemberg, where they were down by more than €1 billion compared to 2023.

Only Thuringia stays in the black

Thuringia was the sole state among Germany's 16 Länder to report a surplus on its municipal books, a slim €105 million, down from €277 million a year earlier. "The budget crisis must be understood as a nationwide phenomenon," the report states.

At the other end of the spectrum, Brandenburg's deficit surged 134% to €832 million, the biggest jump of any area state. Bavaria and Baden-Württemberg each ran deficits in the billions: roughly €5 billion and €4.4 billion respectively. Saxony-Anhalt's deficit was a comparatively modest €102 million, though it remained in the red for the second year running.

Short-term borrowing takes off

A particularly acute warning sign is the explosion of Kassenkredite (short-term loans used to bridge liquidity gaps). These overdraft-style credits had been virtually unknown in fiscally conservative states like Bavaria and Baden-Württemberg. In Bavaria they crossed the €1 billion mark for the first time; in Baden-Württemberg they approached €2 billion. Brandenburg saw its Kassenkredite nearly triple from €59 million to €164 million within a year.

The report notes that the rapid rise in these loans is all the more painful in states that had previously wiped them out through state bailouts and austerity programmes. "These successes have been largely consumed within a very short time."

Call for fundamental reform

Brigitte Mohn, chairwoman of the Bertelsmann Stiftung, urged the federal government, states and municipalities to act jointly to prevent further erosion of infrastructure and public services.

To prevent further loss of substance in infrastructure and municipal services, joint solutions from the federal government, states and municipalities are necessary. We must fundamentally reform municipal finances.

The report warns that deficits are set to widen further in the coming years as demographic pressures and economic headwinds persist. Without systemic reform, the study authors conclude, the capacity of local authorities to maintain schools, roads, swimming pools and other civic amenities will be progressively undermined.