About half of the German gross domestic product is spent via public budgets such as the federal budget, the federal states’ budgets, the municipalities’ budgets or the social securities’ budgets.

While the federal state ran deficits for decades, it has recently generated a government budget surplus. Low interest rates and increasing revenues from taxes and social security contributions have helped the public authorities to avoid a government budget deficit. Nonetheless, government debt continues to amount to more than 2 trillion Euros, leading Germany – like many other member states – to violate the Maastricht convergence criteria that underpin the European Monetary Union.

Besides this evident debt, the social system contains a number of implicit liabilities such as pension-warranties. Germany spends about a third of its economic output on social benefits, more than most other industrialised countries. Demographic change will put the system of benefits under even greater stress.

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