A survey released on Monday reveals that many German cities are facing serious financial challenges, with most unable to balance their budgets this year due to sluggish growth and escalating social spending. This comes just days before an election where the country’s struggling economy is a central issue for voters.
Germany’s economy has been severely impacted by rising foreign competition, increased energy costs, interest rates, and overall economic uncertainty, leading to a contraction in 2024 for the second consecutive year, with further decline expected in 2025.
According to the German Association of Cities, around 37% of major cities are struggling to balance their budgets, while 47% are relying on reserves.
The survey results emerge just before the federal election, where economic issues are expected to dominate voter concerns. The right-wing Alternative for Germany (AfD) party is anticipated to secure second place.
Only 2% of German cities expressed optimism about their finances over the next five years, a sharp drop from 64% in the previous five-year period. Nearly half of cities expect their budgets to worsen, signaling potential cuts to staff, services, and delays to infrastructure projects.
“The era of balanced municipal budgets is over… The issue is structural, not the fault of the cities themselves,” said Markus Lewe, president of the association, during a press conference in Berlin on Monday.
Lewe emphasized the need for urgent action from the incoming federal government to prevent a financial collapse in cities. He called for measures such as a fairer distribution of tax revenue, full funding for federally mandated projects, and a reassessment of the debt brake.
A key strain on city budgets has been rising social spending, including costs for childcare, disability support, and elder care.
Municipal social expenditures surged by 12% last year, with spending on child and youth welfare doubling over the past decade, from 32.8 billion euros to 67.6 billion euros ($70.84 billion), according to the association.
The association also highlighted that new unfunded mandates from federal and state governments, such as the legal entitlement to all-day childcare, have been significant cost drivers. Additionally, the influx of refugees has led to increased spending on social welfare programs, including child, youth, and unemployment benefits.
“We are facing mammoth tasks with transformation tasks such as the transport … energy … or the heat transition. How these massive investments are to be financed has hardly been clarified anyway,” said Burkhard Jung, vice president of the association.
