Germany is on track to establish its largest budget deficit since the country's reunification, raising concerns at the Bundesbank. The regulator warns of the urgent need for measures to maintain financial discipline.

According to forecasts from Germany's central bank, the government budget deficit is expected to reach 4.8% of the economy by 2028, which would be the highest figure since 1995, shortly after the reunification of East and West Germany.

The anticipated widening of the deficit is linked to the government's plans to invest hundreds of billions of euros in infrastructure and defense in the coming years. This policy represents a notable departure from Germany's traditional focus on strict fiscal restraint.

The Bundesbank, serving as the economic advisor to the federal government, has warned that the projected deficit levels will contradict existing constitutional fiscal constraints. In its monthly report, the central bank noted that it remains unclear how the federal government intends to ensure compliance with national fiscal rules by 2028. The Bundesbank estimates that the increase in the deficit will primarily be driven by rising social expenditures, a series of tax reliefs, as well as additional transfer payments.

At the same time, the central bank also highlighted the potential positive economic effects of the planned expenditures. Investments in infrastructure and defense are expected to add about 1.3 percentage points to GDP between 2025 and 2028. Every invested euro is projected to generate approximately 70 cents of economic output.