German towns struggle as municipal debts soar (31 July 2026)
Declining tax income and soaring social costs have pushed many German towns into deep debt, with Oberhausen among the hardest hit.
Rain and a colourful procession of emergency vehicles framed the protest in Berlin: red fire engines and ambulances, orange street-cleaning and waste trucks, and a green public bus parked before the Bundestag as mayors from across Germany demanded more money to keep basic services running. About 10,700 municipalities in the country now carry debt and local leaders warn the situation is worsening. “We are here to draw attention to the financial need of our cities,” said Torsten Berg (SPD), mayor of Oberhausen.
Municipal finances deteriorated sharply in 2025, when German local authorities recorded nearly €30 billion of new borrowing — a historic high that pushed total municipal debt above €200 billion. Forecasts included in municipal financial planning expect comparable annual borrowing through 2028. The shortfall stems largely from declining receipts from the main municipal revenue sources — trade tax and property tax — plus only a 15 percent share of income tax, while a seven-year weak economy has reduced tax income and rising social welfare costs have increased the burden on town budgets.
In Germany’s federal system laws are made by the Bundestag and the 16 state parliaments, yet many statutory obligations fall to municipalities to implement and finance. “The main burdens are transfer payments,” Berg explained. Examples include housing benefits for non-working welfare recipients and support for people with disabilities — duties that municipalities must carry out while often receiving no additional state funding for them.
Oberhausen as an acute example
Oberhausen, in the Ruhr region, is among the most indebted towns. City treasurer Apostolos Calastras, who has overseen municipal finances since 2010, described current annual expenditures of €1.2 billion and said revenues are about €100 million lower than that. By the end of 2025 the city had accumulated €2 billion of debt and required intervention by the state of North Rhine-Westphalia; the outstanding debt has since been reduced to €800 million. Social spending accounts for roughly 50 percent of total costs.
Costs for elderly care have risen as more older residents cannot afford nursing-home fees and the city must cover placements. Spending on youth welfare climbed from €60 million in 2022 to €97 million this year, driven by a growing number of children and adolescents being separated from families because of parental or child problems — often linked to mental health. Calastras also pointed to long-term structural change following the collapse of heavy industry: Centro, the large retail and leisure complex built on former steelworks grounds, restored many jobs but mainly in lower-paid services. “We’ve been saving for 40 years, we sold everything we had and we have nothing left,” he said in resignation.
Local authorities are responding with cuts and new charges: cultural budgets have been slashed, a major theatre is operating renovations while audiences sit onstage, public administration faces further staff reductions of about 5 percent and parking fees have been increased by 50 percent. A hotel “bed tax” is being introduced and municipal utilities — public transport, energy and waste companies — will have to transfer more revenue to city coffers. Citizens react angrily, but officials warn there are few alternatives without risking essential services.
Chancellor Friedrich Merz acknowledged the problem at the end of June and told state premiers he had agreed reforms for federal finances. “We agreed that, starting on 1 September, we will no longer pass laws that do not provide appropriate compensation to municipalities and possibly to the states,” Merz said, adding the guiding principle: “whoever orders, pays the bill.” Under the arrangement municipalities would then cover only 20 percent of those costs. Berg welcomed the step in principle but cautioned: “That only slightly eases our work, because it changes nothing about the general situation. If they want to change it, then the federal authorities must now dig into their pockets.”
Photo: Fred Romero from Paris, France / Wikimedia Commons (CC BY 2.0)
