In 2025, Germany’s municipal fiscal crisis deepened further. In 12 of the country’s 13 federal states, municipalities recorded a combined deficit, with the total rising from €24.8 billion in 2024 to €31.9 billion — an all-time high. Thuringia (Thüringen), the only state still in surplus, saw that surplus shrink from €277 million to €105 million, and the downward trend looks set to continue.
Taken as a whole, this crisis does not stem from a collapse in revenue. Municipal income still grew by 4.1 per cent last year, outpacing inflation. Rather, it is driven by rigid expenditure. Personnel costs at municipal governments have remained persistently high owing to expanded staffing and generous collective pay settlements; social spending, shaped by federal legislation and an ageing population, lies beyond local control; and rising prices have permanently pushed up day-to-day operating costs. The result is a structural deficit that will not disappear of its own accord, even if the German economy recovers.
The situation in Baden-Württemberg is particularly worrying. In this traditional industrial and export powerhouse, revenue from the local business tax (Gewerbesteuer) has fallen by almost 12 per cent over two years — evidence that German manufacturing has been badly weakened by economic stagnation and geopolitical shocks. Municipalities there, already under enormous spending pressure, now face a revenue shortfall on top, raising the risk that the crisis will evolve from a purely expenditure-driven one into a “twin crisis” on both sides of the ledger.
The Kommunaler Finanzreport 2026 (Municipal Finance Report 2026), published by the Bertelsmann Stiftung in June 2026, judges the scale of this crisis to be unprecedented: two years of municipal deficits have wiped out the entire surpluses accumulated over the previous eight years; total municipal debt has soared to around €197 billion; and short-term liquidity credits have posted their largest increase on record! The report warns that belt-tightening by municipalities alone is nowhere near enough to close the gap. The burden must be shared across the federal, state and municipal levels. In the long run, only structural reform can tackle the crisis at its roots: redistributing responsibilities between the tiers of government, streamlining the thicket of funding programmes, digitalising public administration, and increasing municipalities’ shares of property tax and income tax revenue.