COMMISSION STAFF WORKING DOCUMENT 2026 Country Report - Germany Accompanying the document Recommendation for a COUNCIL RECOMMENDATION on the economic, social, employment, structural and budgetary policies of Germany
Date: 2026-06-03
Institutions: European Commission, Reform and Investment Task Force
Subjects: Germany, budget policy, economic policy, economic recovery, economic reform, employment policy, energy policy, investment, social policy, stability pact

EN 

  EN 

   EUROPEAN COMMISSION  Brussels, 3.6.2026  SWD(2026) 205 final  COMMISSION STAFF WORKING DOCUMENT 2026 Country Report - Germany Accompanying the document Recommendation for a COUNCIL RECOMMENDATION  on the economic, social, employment, structural and budgetary policies of Germany {COM(2026) 205 final}  
 
 
 
 
    
 
 
 
 
 
 
 
 
 
ECONOMIC DEVELOPMENTS AND KEY POLICY 
CHALLENGES 

labour  market.  Reflecting 

Years  of  stagnation  and  accelerating 
structural  change  are  leaving  their  mark 
on  the 
the 
sluggish  economy  and  weak  labour  demand, 
in 
increased 
unemployment 
from  3.5% 
January  2025  to  4.0% 
in  March  2026. 
Employment  growth  in  past  years  turned  into 
job  shedding,  with  an  employment  decline  of 
in  Q1  2026,  year-on-year.  Hiring 
0.1% 
intentions 
Employment 
weak. 
destruction  has  accelerated  in  manufacturing, 
while  the  public  sector  has  continued  to  hire, 
increasing  employment  by  17.4%  since  2015 
compared  with  6.4%  in  the  rest  of  the 
economy.  

remain 

Looking  ahead,  the  war  in  Iran  has 
reduced  growth  prospects  and  driven 
inflation  up.  In  2026,  the  economy  is  set  to 
recover  by  0.6%,  driven  by  the  ramp-up  in 
public spending. However, elevated inflation as 
well as uncertainty due to the situation in the 
Middle East and US tariffs detract from private 
consumption,  investment,  and  exports  and 
therefore  weaken  this  recovery.  As  these 
effects  subside  slowly,  growth  in  2027  is 
forecast to accelerate to 0.9% and inflation to 
decelerate. 

Years of economic stagnation are 
leaving their mark 

to 

by 

the 

due 

recent 

sharply 

Germany  has  been  experiencing  weak 
economic  performance  for  several  years, 
with  almost  no  real  GDP  growth  since 
2019.  Since 
the  COVID-19  pandemic, 
Germany  has  recorded  one  of  the  weakest 
recoveries  and  lowest  long-term  growth  rates 
in  the  EU.  Global  export  market  shares  have 
declined 
waning 
competitiveness  in  the  context  of  the  rise  of 
China  as  a  global  competitor  (1).  This  trend  is 
global 
compounded 
fragmentation of trade and US tariffs. Drivers 
of  the  loss  in  competitiveness  include  fading 
technological leadership and skills shortages in 
the  wake  of  a  shrinking  working-age 
population. In addition, wage costs and energy 
prices  are  high.  Private  investment  had  fallen 
back  to  below  its  2015  level  by  2025,  driven 
by  weakness 
and 
construction.  Signs  of  structural  change  are 
visible  as 
industrial  value  added  and 
production  diverge  (particularly  for  cars  and 
machines), 
indicating  a  shift  of  physical 
production  abroad  and  an  increased  focus  on 
the  provision  of 
industry-related  services 
domestically.  The  public  sector  has  cushioned 
the  downturn  somewhat,  also  due  to  rising 
public  consumption  and  expenditure 
for 
defence  and  infrastructure  (see  Graph  1.1). 
Despite  recent  increases,  public  investment 
remains considerably below the EU average.  

in  manufacturing 

(1)  Bundesbank, 2025, What’s behind the sustained decline 

in German export market shares, bundesbank.de. 

2 

 
 
 
Graph 1.1: GDP, public and private investment and public consumption 

Source:  National Accounts 

Structural reforms urgently 
needed on top of public 
investment 

force 

shrinks. 

Long-term  growth  remains  among  the 
lowest in the EU. Potential growth is the rate 
at  which  an  economy  grows  over  the  long 
term  when  using  its  resources  at  a  normal 
level.  For  Germany,  it  is  projected  to  average 
just  0.5%  annually  over  the  period  2026-
2030,  placing  it  at  the  low  end  among  EU 
economies 
(see  Graph  1.2).  Demographic 
ageing  is  dampening  economic  growth  as  the 
labour 
is 
compounded by low average hours worked. At 
the  same 
time,  weak  and  deteriorating 
education outcomes,  coupled with a very high 
share  of  early  school 
further 
aggravate  the  situation  (see  Section  4).  Low 
public and private investment over many years 
has  led  to  an  ageing  capital  stock  (the 
economy’s  existing  buildings,  machines  and 
lack  of 
infrastructure).  Together  with  a 
disruptive  innovation,  this 
is  weighing  on 
productivity  and  the  overall  growth  potential 
of the economy.  

leavers, 

effect 

This 

Fund 

legislated 

The  government  has  put  forward  a 
flagship public investment fund to reboot 
growth.  Next  to  the  reform  of  the  national 
(2),  a  Special 
debt  brake 
for 
Infrastructure  and  Climate  Neutrality  worth 
in  2025. 
EUR  500  billion  was 
Spending from the special fund is expected to 
continue a positive trend in public investment, 
which  has  been  apparent  since  2023  (see 
Graph 1.1), after decades of underinvestment. 
Still,  there  is  room  to  boost  the  additionality 
and quality of spending (see below). A stronger 
focus  on  capital  formation  and  the  use  of 
quantitative  methods,  such  as  cost-benefit 
analyses  of  measures,  can  help  to  maximise 
the  positive 
impact  on  potential  growth. 
Typical  high-return  priorities  for  investment 
include  schools  and  early childhood education 
and  care  (see  Section  4),  rail  infrastructure 
(see  Section  3),  as  well  as  the  innovation 
system (see Section 2). 

(2)  The debt brake (Schuldenbremse) in Germany is a 
constitutional fiscal rule that limits government 
borrowing, allowing a structural deficit of 0.35% of GDP 
for the federal level. The 2025 debt brake reform 
created additional fiscal space. Defence spending 
above 1% of GDP is not considered in the debt brake 
any more and the Länder can issue debt of 0.35% of 
GDP annually in structural terms.  

3 

​Private InvestmentPublic Consumption​GDPPublic Investment9510511512513514515520152016201720182019202020212022202320242025 
 
   
Graph 1.2: Potential growth 

tax  and  social  security  system,  the  current 
reform  agenda  emphasises  competitiveness, 
but  with  a  focus  on  traditional  industries,  as 
opposed to disruptive innovation and economic 
transformation.  More  would  be  needed  to  be 
done  to  revamp  the  traditionally  industry-
based,  export-oriented  economic  model,  and 
the  deepening  of  the  EU  single  market  can 
play  a  significant  role  in  rebooting  Germany’s 
sources of growth and jobs. 

and 

Delivering  ambitiously  on  the  new  push 
for  State  modernisation,  simplification 
and  digitalisation  could  yield  significant 
results. The newly created Ministry for Digital 
Transformation 
Government 
targets  for 
Modernisation  has  ambitious 
reducing  administrative  burden  and  boosting 
digital,  modern  administration.  However,  the 
instruments  to  enforce  these  targets  often 
remain  uncertain,  in  particular  in  light  of  the 
constitutional  division  of 
responsibilities 
between  different  levels  of  the  State  (see 
Section 2). To improve permitting and planning 
procedures 
the 
public 
government  has  put 
several 
measures.  Among  them  are  the  Procurement 
Acceleration Act, and the Future Infrastructure 
Act, the latter aiming at prioritising, simplifying 
and  digitalising  rail,  motorway  and  waterway 
projects  and  currently  going  through  the 
parliamentary  process.  These measures  relate 
to  the  2025  country-specific  recommendation 
(CSR) 
investment  by 
removing relevant bottlenecks. 

increase  public 

investment, 

in  place 

for 

to 

Germany faces several economic security 
challenges  linked  to  its  export-oriented 
economy  and  strong  industrial  base.  To 
prevent  shortages,  a  raw  materials  fund  was 
launched  in  late  2024,  supporting  projects  in 
extraction,  processing  and  recycling.  A  first 
project  received  funding  in  2025.  It  aims  to 
extract and process lithium in Germany for up 
to  500 000  electric  cars  per  year 
(see 
Annex 5). In addition, the government adopted 
a  national  economic  security  strategy  and 
plans  to 
introduce  stronger  screening  of 
foreign  investments  in  sensitive  technologies. 
Digital sovereignty and cyber security are also 
growing  concerns  for  Germany.  Cyberattacks 

4 

Average potential growth 2026-2030  
Source: Commission spring 2026 forecast 

public 

spending  must 

By  contrast,  the  reform  agenda  lacks 
momentum.  To  have  a  lasting  effect,  the 
additional 
be 
accompanied by an ambitious reform agenda. 
However,  so  far,  there  has  only  been  limited 
progress  on  structural 
reform  measures. 
Several  expert  committees  were  set  up  in 
2025 to work on key issues such as a further 
reform  of  the  debt  brake,  long-term  care, 
health 
insurance,  the  welfare  state,  the 
pension  system  and  fiscal  relations  between 
the  federal  level  and  the  Länder  (see  Annex 
these  committees  have 
18).  Some  of 
presented their results; others are expected to 
the 
do 
recommendations 
and 
are 
political discussions are still ongoing in several 
fields. 
and 
effectiveness  of  the  healthcare,  long-term 
care  and  pension  systems  is  essential  to 
preventing 
increases  of  budget 
transfers  or  social  security  contribution  rates 
(see  also  Annex  15).  Workers  in  Germany 
already face the second highest level of taxes 
and social security contributions on earnings in 
the EU (see below and Section 4). Beyond the 

by  mid-2026.  However, 
non-binding, 

Increasing 

efficiency 

further 

the 

so 

012345MTIECYHRBGPLESSILTDKSEELPTCZROLVLUSKBENLHUFRFIATITDEEE 
   
are estimated to have caused losses of almost 
EUR  200  billion  in  2025  (5%  of  GDP)  (3). 
Recent 
initiatives,  such  as  the  high-tech 
agenda  or  the  data  centre  strategy,  include 
measures  to  strengthen  the  cybersecurity  of 
advanced  technologies  and  infrastructure.  In 
times of increasing geopolitical fragmentation, 
the  single  market  plays  a  central  role  in 
ensuring  economic  security  by  providing 
reliable  supply  chains,  enabling  cross-border 
energy 
trade  during  supply  shocks  and 
affording  economies  of  scale  to  sustain 
strategic  industries  such  as  semiconductors 
and batteries. 

Accelerating  the  green  transition 
is 
essential  for  sustainable  growth  and 
economic  security.  Germany  has  rapidly 
expanded  renewables,  but  insufficient  grid 
capacity  and  a  lack  of  flexible  infrastructure 
are  creating  bottlenecks  in  integrating  clean 
energy.  Energy  supplies  have  been  diversified 
considerably  and  a  further  expansion  of 
is 
liquefied  natural  gas 
planned.  Nevertheless,  Germany 
remains 
dependent  on  fossil  fuel  imports.  Additional 
investment in renewables, energy storage and 
energy  efficiency  would  reinforce  energy 
security (see Section 3). 

import  capacity 

Rising public debt and deficits  

fiscal  policy 

After  a  period  of  decreasing  public  debt 
and  deficits, 
is  now 
expansionary. Debt-to-GDP rose from 62.2% 
in 2024 to 63.5% in 2025 and is expected to 
rise to 68.0% in 2027. The fiscal expansion is 
partly  due  to  additional  spending  related  to 
the  reform  of  the  2025  national  debt  brake 
and  the  creation  of  the  Special  Fund  for 
Infrastructure and Climate Neutrality. Defence 
expenditure  above  1%  of  GDP  has  been 
exempted  from  the  national  debt  brake. 
Defence spending has increased as a share of 
GDP, from 1.1% in 2021 to 1.5% in 2025 and 
is planned to rise to 2.2% in 2027. In order to 
facilitate  an  increase  in  public  spending  on 

(3)  Bundesamt für Verfassungsschutz & Bitkom, 2025, 
Wirtschaftsschutz 2025, verfassungsschutz.de.   

defence,  the  Council  of  the  European  Union 
has  activated  the  National  Escape  Clause 
(NEC) for Germany (4). Germany’s recovery and 
resilience  plan  (RRP)  contains  two  defence-
related  investments  (worth  around  EUR  670 
million),  both 
including  a  final  target  or 
milestone  planned  to  be  completed  in  2026. 
Germany  has  not  requested  EU  loans  under 
SAFE  (Security  Action  for  Europe)  for  defence 
procurement. 

Graph 1.3: Impact of revenue measures on the 
government balance (% of GDP) 

The graph shows the impact of the reformed depreciation rules 
for firms, the VAT reduction for restaurants and the reduction in 
corporate taxes. The government balance is expressed as 
percentage-of-GDP deviations from the model baseline. The 
estimates include macroeconomic feedback effects. 
Source: European Commission using QUEST 

increase 

Besides  an 
in  expenditure, 
several  revenue-reducing  measures  have 
been  adopted.  Loosened  depreciation  rules 
for  private  equipment  investment,  a  reduction 
in  the  corporate  tax  rate as  of  2028,  and  the 
VAT reduction for restaurants will exert further 
pressure  on  public  finances  by  reducing 
revenues,  but  are  also  expected  to  provide  a 
boost to growth in the short term. Simulations 
by  the  European  Commission,  which  account 
for  second-round  effects,  show  that  this 
package of revenue measures is estimated to 
have  a  balance-deteriorating 
in 
terms  of  approximately  0.2 
cumulative 
percentage  points  (pps)  in  2027.  This  impact 

impact 

(4)  The  activation  of  the  national  escape  clause  provides 
Member  States  with  budgetary  flexibility  to  increase 
defence  expenditure,  without  an  immediate  need  to 
finance  such  increase  with  spending  cuts  or  revenue-
raising  measures.  The  flexibility  thus  gives  Member 
States  the  necessary  time  to  accommodate  higher 
defence expenditure within national budgets. 

5 

-0.15-0.20-0.07-0.12-0.1620262027202820292030 
 
   
 
decreases  subsequently  due  to  the  expiry  of 
the  reform  of  depreciation  rules  (see  Graph 
1.3).  

German  medium-term 

fiscal-
The 
structural  plan  (MTP)  and  the  federal 
budgetary  planning  make  provision  for 
some  fiscal  consolidation  from  2027. 
Under the plan, Germany committed to limiting 
its  net  expenditure  growth  until  2029,  aiming 
to bring debt on a downward trajectory after a 
period  of  fiscal  expansion  in  2025  and  2026. 
This  would  imply  an  improvement  of  the 
structural primary balance of 1.5 pps between 
2025 and 2029. 

Boosting the quality of public 
finances remains a priority 

than  programmed  by 

The  Special  Fund  for  Infrastructure  and 
Climate  Neutrality  will  raise  investment 
growth  in  the  years  to  come.  The  fund 
relates  to  the  2025  CSR  to  strengthen  public 
investment  and  improve  the  quality  of  public 
finances.  Although  the  fiscal  boost  in  2025 
was  smaller 
the 
government 
(plan:  EUR 37  billion,  outturn 
according  to  additional  borrowing:  EUR 24 
billion),  public  investment  as  a  share  of  GDP 
rose from 3.1% in 2024 to 3.3% in 2025 and 
is set to grow further to 3.7% in 2027. In the 
decade 
share  was 
significantly lower, at 2.5% of GDP. The bulk of 
the  new  expenditure 
to 
investment  in  transport  infrastructure  and 
digitalisation, thus addressing productivity and 
competitiveness issues. Spending is subject to 
an  additionality  criterion,  according  to  which 
investment can only be financed by the fund if 
an investment ratio of 10% in the core budget 
is safeguarded.  

is  dedicated 

2010-2019, 

the 

At the  same  time, implementation  of the 
Special Fund is facing challenges. The fund 
also  finances  expenditure  not  directly  related 
to  public  infrastructure  or  climate  neutrality. 
First, the fund finances investment grants and 
subsidies,  which  do  not  necessarily  increase 
the  productive  capital  stock.  Second,  some 
investment  was  shifted  from  the  core  budget 

the 

and 

need 

reducing 

to  the  Special  Fund  for  Infrastructure  and 
Climate  Neutrality,  thereby  creating  fiscal 
space for non-investment spending in the core 
budget 
for 
consolidation efforts. The same applies to the 
Climate  and  Transformation  Fund  and  for  the 
Länder  (EUR 100  billion  each  out  of  EUR 500 
billion in total). The additionality of investment 
will increasingly come into play in the coming 
years  as  planning  and  implementation  of 
projects 
therefore  an 
time  and 
increasing  number  of  new  projects  can  be 
realized. 

takes 

trend  of 

The  medium-term 
rising 
spending  on  government  consumption, 
social  affairs  and  subsidies  continued  in 
2025.  The  public  expenditure  share  in  GDP 
increased  from  45.5%  in  2019  to  50.6%  in 
2025.  Half  of  the  increase  is  due  to  social 
benefits, and social security contribution rates 
are  among  the  highest  in  the  EU.  Pension-
related  transfers  from  the  federal  budget 
exceed  EUR  120  billion  per  year,  around  25% 
of federal government expenditure, which risks 
crowding  out  other,  more  growth-enhancing 
public  spending.  Recently  proposed  health 
system  reforms  can  help  prevent  further 
increases  to  the  statutory  health  insurance 
contribution rates if adopted, but this is only a 
short-term  solution  which  does  not  address 
systemic  issues  such  as  the  lack  of  focus  on 
more  cost-effective  models  of  care  delivery 
(see Annex 15) (5). The recent decision to keep 
the  average  income  replacement  level  of 
pensions  at  48%,  along  with  the  increase  of 
pensions 
parents 
(Mütterrente)  will  raise  expenditure  further. 
Capital  transfers  and  other  support  measures 
have  also  risen.  For  example,  investment 
grants linked to the green transition increased 
significantly  from  0.7%  of  GDP  in  2019  to 
1.5% in 2025. The grants are to a large extent 
dedicated  to  improving  the  energy  efficiency 
of the housing stock.  These expenditures must 
be  assessed  in  terms  of  their  efficiency, 
particularly  in  light  of  the  need  for  fiscal 
consolidation, the possibility of subsidies being 
given  for  actions  that  would  have  happened 

entitlements 

for 

(5)  BMG, 2026, GKV-Beitragssatzstabilisierungsgesetz, 

bundesgesundheitsministerium.de. 

6 

 
 
Climate 

EUR 100  billion  of  the  Special  Fund  for 
and 
Infrastructure 
Neutrality 
dedicated 
the  German  Länder  and 
to 
municipalities  is  supposed  to  improve  the 
situation.  However,  improving  the  structural 
revenue base of municipalities could also play 
an  important  role  in  the  longer  term  (see 
Annex  18).  Recent  reforms  of  taxes  on 
immovable  property  (Grundsteuer)  and  the 
system  of  municipal  multipliers  (Hebesätze) 
are  unlikely  to  strengthen  municipal  finances 
significantly. 

Promoting a growth- and 
investment-friendly tax structure 

and 

growth 

sustainable 

First  steps  have  been  taken  towards  a 
more  investment-friendly  tax  structure. 
In  2025,  Germany  received  a  CSR  to  improve 
the  tax  mix  as  a  key  lever  for  more  inclusive 
and 
stronger 
competitiveness.  Since  then,  Germany  has 
implemented  accelerated  depreciation  options 
and the first corporate tax rate reduction since 
2008,  which  is  to  become  effective  in  2028. 
The  R&D  tax  credit  has  also  been  extended, 
stimulating investment in innovation. To make 
better  use  of  existing  employment  potential, 
(Aktivrente)  generates 
the  active  pension 
incentives  for  people  above  retirement  age  to 
work 
it  possible  to  earn 
EUR 2 000  without  paying  taxes  as  of  2026. 
However,  the  measure  creates  fiscal  costs, 
while the size of the effect on labour supply is 
uncertain.  

longer,  making 

There  is  scope  to  improve  Germany’s 
overall  tax  mix,  in  particular,  by  shifting 
the  burden  away  from  labour.  Reform 
steps  to  address  Germany’s  high  labour  tax 
wedge  (personal  income  taxes  and  social-
security  contributions)  are  still  pending. 
Potential 
concerning 
improvements 
streamlining  benefit  withdrawal  to  strengthen 
social 
incentives  and  digitalising 
work 
administration were pinpointed by the Welfare 
State Commission (Sozialstaatskommission). A 

(9)  German Council of Economic Experts, 2025, Annual 

Report 2025/2026, svr-wirtschaft.de. 

anyway and alternative policies, such as higher 
carbon  taxes,  which  are  widely  regarded  as 
economically  efficient  measures  for  reducing 
carbon emissions (6). 

the  working-age  population 

A further pension system reform can help 
to avoid rises in fiscal transfers or social 
security  contribution  rates.  In  the  coming 
in 
decade, 
Germany  is  expected  to  decline  by  400 000 
every  year,  weighing  on  tax  revenue  and 
driving  up  expenditure.  At  the  same  time,  life 
expectancy increased from 78.6 years in 2001 
to  81.2  years  in  2024,  and  is  expected  to 
increase  further.  A 
reform  of  statutory 
pensions is unavoidable to prevent further cost 
increases. Levers to enhance the sustainability 
of  the  statutory  pension  system 
include 
reducing incentives for early retirement, linking 
the  statutory  retirement  age  to  rising  life 
expectancy, adjusting pension indexation, fully 
reintroducing  the  sustainability  factor  and 
revising  contribution  ceilings.  An  increased 
differentiation  of  pension  replacement  rates 
by income level could contribute to addressing 
adequacy  concerns  (see  Annex  12).  Moreover, 
recent  pension  reforms  of  occupational  and 
voluntary pensions (see Annexes 2 and 6) can 
contribute  to  overall  future  pension  streams, 
by allowing more flexible asset allocation. Still, 
there 
increasing 
coverage  (see  Section  2)  and  it  will  remain 
important  to  monitor  and  ensure  low  system 
costs,  for  both  occupational  and  individual 
pensions  which  currently  contribute  only  11% 
of total pension income (7).  

remains  potential 

for 

distribution  of 

The 
revenues  and 
responsibilities  in  the  federal  structure 
local 
poses  a  challenge  to  ensuring 
investment  and  services.  Net  municipal 
investment  has  been  negative 
two 
decades, and by 2024 there was an estimated 
investment  gap  of  EUR  215.7  billion  (5%  of 
GDP)  especially  in  schools  and  roads  (8)(9). 

for 

(6)  See, for example, Anthony Wiskich, 2024,  A carbon tax 
versus clean subsidies: Optimal and suboptimal policies 
for the clean transition,  sciencedirect.com. 

(7)  BMAS, 2024, Alterssicherungsbericht, bmas.de. 

(8)  KfW, 2025, KfW-Kommunalpanel, kfw.de. 

7 

 
 
 
Box 1: 

UN Sustainable Development Goals (SDGs) 

Germany  performs  above  the  EU  average  and  is  further  improving  on  most  SDGs 
related  to productivity  (SDGs  8  and  9)  but  needs  to  catch  up  with  the  EU  average  on 
quality education (SDG 4). 

Worsening  education  outcomes,  a  high  number  of  young  people  leaving  school  early 
and  weak  basic  digital  skills  risk  exacerbating  skills  shortages  and  further  hampering 
economic growth and competitiveness. Out of the 17 indicators, 7 SDGs remain below 
the EU average. These relate to quality education (SDG 4), environmental sustainability 
(SDGs 2, 12 and 13) and fairness (SDGs 5, 7 and 10) (see Annex 17). 

bracket 

(Mittelstandsbauch). 

reduction of income tax, especially for low and 
middle  incomes,  is  announced  in  the  coalition 
agreement. Reducing taxes on middle incomes 
could flatten the steep tax progression in that 
income 
To 
increase  labour  supply  of  second  earners, 
often  women,  a  reform  of  the  joint  taxation 
system of married couples (Ehegattensplitting) 
remains  essential.  Lowering  tax  wedges  will 
also  require  solutions  to  limit  social  security 
contributions,  as  these  account  for  two  thirds 
of  the  overall  burden  on  labour  income.  The 
average income tax burden of a single earner 
is 
security 
contributions are around 34% (see Annex 3).  

around  15%, 

social 

and 

to 

the 

Shifting  the  tax  mix  towards 
less 
distorting  taxes  could  increase  revenue 
potential.  Instead  of  broadening  the  VAT 
base,  a  reduction  of  the  VAT  rate  for 
restaurants  was  added 
list  of 
exemptions  as  of  2026,  despite  its  limited 
economic  justification.  Germany  introduced  a 
national  carbon  price  in  2021,  but  overall 
environmental  taxes  still  generate  modest 
revenues  relative  to  peers  (1.75%  of  GDP  in 
2024; EU average: 2.08%). The lower taxation 
of diesel compared to gasoline (Dieselprivileg) 
remains questionable, as it lowers tax revenue 
and reduces incentives to switch to e-mobility. 
As of 2026, environmentally harmful subsidies 
rise even further, with tax reductions for diesel 
used  in  agriculture  (Agrardiesel)  increasing 
back  to  the  level  that  applied  until  2024  and 
further 
allowances 
(Pendlerpauschale).  Following  the  recent  spike 
in  energy  prices  linked  to  the  conflict  in  the 
Middle  East,  some  European  countries  have 
prioritised  supporting  clean  alternatives,  while 
Germany has also relied on temporary fuel tax 

commuter 

raised 

cuts,  distorting  price  signals  and  lowering 
incentives to shift away from fossil fuels (see 
Annex  9).  Local  tax  revenue  sources  show 
further  potential  as  well  (see  above).  Along 
with  ongoing  efforts  in  other  areas  –  like 
digitalising 
reducing 
compliance  costs  and  fighting  aggressive  tax 
planning as well as tax fraud – improvements 
along  these  lines  could  make  Germany’s  tax 
system  more  growth-friendly,  resilient  and 
aligned with EU policy objectives.  

administration, 

tax 

Facilitating construction to 
address housing challenges 

to 

Housing investment fell for the fifth year 
in  a  row in  2025.  It  has  contracted  by  20% 
since  2020, 
economic 
contributing 
stagnation.  Housing  completions  remain  far 
below  the  levels  needed  (see  Annex  16)  and 
housing  affordability  has  further  deteriorated 
(see  Annexes  14,  17  and  18).  A  tentative 
recovery  has  only  recently  begun.  In  2025, 
housing  permits  increased  by  11%  compared 
with  the  year  before  but  they  were  still  37% 
below the 2021 level, signalling continued low 
construction activity (see Annex 16). Moreover, 
the  gap  between  rents  in  existing  and  new 
contracts  is  widening.  This  leads  to  a  frozen 
housing market, limiting labour mobility (10). 

The ‘Construction Turbo’ Act could help to 
increase  the  supply  of  housing,  but  its 

(10)  ifW Kiel, 2026, Wachstumseffekte und 

Wachstumshebel, insm.de. 

8 

 
 
 
 
funding 

instruments 

competitiveness, 

provide 
EU 
considerable  resources  to  Germany.  They 
support investments and structural reforms to 
environmental 
increase 
fairness  and 
sustainability,  skills,  social 
security,  while  helping  to  address  challenges 
identified in the CSRs. Key instruments include 
the  Recovery  and  Resilience  Facility  (see  Box 
2)  and  Cohesion  policy  funds  (see  Box  3).  In 
addition, the Common Agricultural Policy (CAP) 
provides  Germany  with  an  EU  contribution  of 
EUR  30.7  billion  under  the  CAP  strategic  plan 
for 2023-2027 (11), while EUR 212 million are 
allocated  under  the  Common  Fisheries  Policy 
(CFP).  A  further  EUR  2.6  billion  are  available 
under  the  Asylum,  Migration  and  Integration 
the  Border 
together  with 
Fund 
Management  and  Visa  Instrument  (BMVI)  and 
the  Internal  Security  Fund  (ISF).  Other  EU 
programmes  also  support  competitiveness  in 
Germany,  for  instance  through  open  calls 
under  Horizon  Europe  and  the  Connecting 
Europe Facility. 

(AMIF), 

and 

for  housing 
regulation 

remains  uncertain.  Germany 
uptake 
received  a  CSR  in  2025  to  improve  the 
investments  by 
conditions 
simplifying 
procedures, 
reviewing rental  law and mobilising additional 
building  land,  with  the  concurrent  aim  of 
tackling  the  housing  affordability  challenges. 
The  government  has  adopted  a  ‘Construction 
Turbo’  Act  that  aims  to  mobilise  additional 
building  land  and  speed  up  procedures.  This 
could  represent  an  important  step  forward. 
However,  its  application  depends  on  approval 
by  municipalities,  thereby  potentially  limiting 
the  overall  impact.  In  addition,  rental  rules 
have not been made more investment-friendly 
as recommended. 

Further  steps  would  help  to  increase 
housing  supply.  Reducing  construction  costs, 
which  are  the  highest  in  the  EU,  is  key  to 
delivering  more  housing.  Important  reforms, 
such  as  a  fundamental  reform  of  the  Federal 
Building Code to accelerate construction, which 
was  announced  in  the  coalition  agreement, 
should go hand in hand with the digitalisation 
of  relevant  procedures.  The  introduction  of 
‘housing  type  E’,  a  simpler,  needs-based 
standard in construction, has been announced 
but  not  yet  implemented.  It  will  need  to 
provide  legal  certainty  for  construction  firms 
when  applying  simpler  standards  in  order  to 
effectively  reduce  construction  costs.  Further 
harmonisation  of  regulations  across  regions 
would 
serial 
construction. 
links  to 
suburban  areas  could  encourage  the  use  of 
available  land  and  housing  outside  cities  (see 
Annex  16).  Furthermore,  the  stock  of  social 
housing,  which  has  experienced  a  significant 
decline over the past two decades, needs to be 
increased (see Annex 16).  

Improving  transport 

facilitate  modular 

and 

(11)  An overview of Germany’s formally approved strategy 
to implement the EU’s common agricultural policy 
nationally can be found at agriculture.ec.europa.eu. 

9 

 
 
Box 2: 

Key achievements of the Recovery and Resilience Facility (RRF) 

Germany’s  recovery  and  resilience  plan  represents  a  total  budget  of  EUR  30.3  billion, 
corresponding  to  0.7%  of  2023  GDP,  aimed  at  supporting  reforms  and  investments 
contributing to the green and digital transitions, strengthening economic resilience and 
addressing structural challenges identified in the European Semester.  

As  of  1  June  2026,  EUR  24.4  billion  (around  80%  of  the  total  allocation)  has  been 
disbursed following the satisfactory fulfilment of 100 milestones and targets.   

Germany  is  the  largest  beneficiary  of  spillover  effects  stemming  from  other  recovery 
and resilience plans in the EU. The total macroeconomic impact of the RRF in Germany 
has been estimated at EUR 66.1 billion, double the size of Germany’s own recovery and 
resilience plan (12).  

Highlights and impact of the plan  
•  Reform  package  with  20  measures  adopted  by  the  federal  government  and  the  Länder  to 
accelerate  planning  and  approval  procedures,  the  outflow  of  grants  and  housing 
construction.  

• 

Improving  access  to  over  200  public  services  across  Germany  by  standardising  and 
digitalising them. 

•  New regulatory framework for offshore wind deployment and acceleration.  

•  Support  for  the  purchase  of  around  1  million  electric  vehicles  and  the  necessary 

charging infrastructure.   

•  Digitalisation  of  hospitals.  With  over  1200  hospitals  improving  their  digital  and  IT-

infrastructure (expected).  

•  Energy-efficient  renovations  in  buildings.  Supporting  375 000  renovations  to  make 

buildings more energy efficient (expected). 

(12)  European Commission, 2025, Economic impacts of the 
Recovery and Resilience Facility: the Case of Germany, 
reforms-investments.ec.europa.eu. 

10 

 
 
 
 
 
Box 3: 

Contribution of cohesion policy funds 

EU  cohesion  policy  funding  is  supporting  Germany’s  efforts  to  boost 
competitiveness,  environmental  sustainability,  as  well  as  skills  and  social 
fairness.  In  the  2021-2027  programming  period,  EU  cohesion  policy  funds(13)  are 
providing  EUR  19.9  billion  (amounting  to  EUR  37.3  billion  paired  with  national  co-
financing)  to  Germany.  The  value  of  selected  projects  corresponded  to  60.8%  of  the 
total allocation as of March 2026, with additional calls for projects in the pipeline. 

• 

Innovation,  business  environment  and  productivity.  EUR  8.3  billion  is  allocated  for 
research  and  innovation  and  competitiveness  of  small  to  medium-sized  enterprises  (SMEs) 
and  for  the  regions  most  affected  by  the  transition  away  from  carbon-intensive  activities. 
Around 29 000 firms have already seen their projects approved.  

•  Decarbonisation, energy affordability and sustainability. EUR 6.4 billion is dedicated to 
clean  transition  projects  and  for  the  regions  most  affected  by  the  transition  away  from 
carbon-intensive  activities.  This  funding  contributes,  among  other  things,  to  an  increase  in 
waste-recycling capacity of 15 323 tonnes per year and provides EUR 9.75 million in support 
for investments addressing natural risks. 

•  Skills,  quality  jobs  and  social  fairness.  The  European  Social  Fund  Plus  (ESF+)  supports 
education  and  training  measures  (EUR  2.04  billion),  labour  market  measures  (EUR  1.83 
billion) as well as social inclusion (EUR 2.16 billion) and social innovation (EUR 0.24 billion). 
13.8%  of  the  ESF+  funding  is  allocated  to  youth  employment  measures  and  5.8%  to 
combating  child  poverty.  EUR 36.9  million  is  used  to  support  the  Strategic  Technologies for 
Europe Platform (STEP) in the area of upskilling for the future in STEP technologies. 

The  mid-term  review  (14)  reinforced  the  cohesion  policy’s  contribution  to  emerging 
strategic priorities, reallocating nearly EUR 2.1 billion. The highest share of reallocations 
(90.5%)  supports  critical  technologies  (EUR  1.9  billion  from  the  European  Regional 
Development  Fund  and  the  Just  Transition  Fund).  The  mid-term  review  also  improves 
water  resilience  and  provides  additional 
in  more  affordable  and 
sustainable housing. It also strengthens increased energy connectivity through recharge 
infrastructure,  as  well  as  research  and  development  projects  to  enhance  defence-
related capacities. In addition to cohesion policy funding, Germany will be allocated up 
to EUR 5.32 billion under the Social Climate Fund over 2026-2032 to help mitigate the 
social  impact  of  the  new  emissions  trading  system  (ETS2),  supporting  vulnerable 
households. 

investments 

(13)  European Regional Development Fund (ERDF), European 
Social Fund Plus (ESF+), Cohesion Fund (CF) and Just.  

(14)  The mid-term review is carried out halfway through the 

2021-2027 programming period. It is a formal 
assessment process required under Article 18 of the 
Common Provisions Regulation that aims to assess the 
implementation of programmes and, where necessary, 
propose adjustments to improve their performance, 
ensure their relevance in light of new and emerging 
needs and keep them aligned with other EU policies. 

11 

 
 
 
INNOVATION, BUSINESS ENVIRONMENT AND 
PRODUCTIVITY 

received 

regulation, 

country-specific 
Germany 
recommendations (CSRs) in 2025 to boost 
innovation,  strengthen  venture  capital, 
simplify 
accelerate 
digitalisation  of  administration  and 
expand  digital 
infrastructure.  Several 
measures  have  been  implemented  to  foster 
research and innovation as well as to increase 
venture  capital.  The  new  Ministry  for  Digital 
Transformation  and  Government  Modern-
isation has proposed ambitious modernisation 
agendas  for  the  federal  level  and  multilevel 
governance,  seeking  to  reduce  bureaucracy, 
accelerate  end-to-end  digitalisation  and 
strengthen  interoperable  solutions  across  the 
federal government, Länder and municipalities 
(see Annex 7). 

state 

fast-growing 

Diversifying  the  economy,  modernising 
strengthening 
and 
the 
competitiveness  and  the  single  market 
remain  priorities.  High-quality,  mid-tech 
manufacturing  plays  a  major  role  in  the 
cutting-edge 
economy; 
technologies  less  so.  Furthermore,  venture 
capital 
in 
international  comparison.  Germany  still  has  a 
digital 
significant 
infrastructure  and  the  digitalisation  of  public 
administration.  To  strengthen  competitiveness 
and  the  single  market,  it  is  crucial  that  the 
government achieves its objective of reducing 
cumbersome regulation and procedures.  

regarding 

financing 

remains 

backlog 

shallow 

Fostering new sources of growth  

innovation  are  key  to 
Research  and 
unlocking  new  growth  opportunities. 
Germany  was  advised  in  the  2025  CSRs  to 
research 
boost 
commercialisation  and  by  increasing  public 
funding  for  transformative  innovation.  The 
research 
government  has  expanded 

innovation  by  facilitating 

the 

to 

allowance  to  companies  and  launched  a  new 
initiative  to  strengthen  spin-offs  in  selected 
hubs  (‘start-up  factories’).  The  “1  000  Heads 
Programme”  aims  to  attract  international  top 
researchers to Germany  with 286 researchers 
having relocated in the first year. Furthermore, 
the  high-tech  agenda  aims 
foster 
investment  in  research  and  innovation  for  six 
key technologies with funding of up to EUR 18 
billion.  However,  it  is  unclear  to  what  extent 
the  budget  is  additional  to  existing  support 
and if it will be used for disruptive innovation, 
rather than incrementally in traditional sectors 
(see  Annex  4).  Despite 
tangible  efforts, 
innovation  activity  remains  concentrated  in 
large  companies  and  in  mid-tech  sectors, 
including automotive. Since 2019, expenditure 
on  research  and  development  has  stagnated, 
while  other  leading  countries  have  increased 
investment significantly (15). The shift towards 
new tech fields is slow compared with the US. 
Only 36% of German R&D spending is going to 
high-tech,  compared  to  45%  in  the  EU  as  a 
whole and 85% in the US. This is also reflected 
in the decrease of patenting activity in the last 
12 years (see Annex 4). 

into 
technology 

successful 
transfer 

Germany  still  struggles  to  turn  excellent 
products. 
research 
Although 
is  formally 
recognised as a core mission, it often receives 
limited  strategic attention, funding and career 
incentives,  which  discourages 
researchers 
commercialisation. 
from 
Negotiations 
property 
between  universities  and  founders  take  on 
average  18  months (16).  This  slows  down  the 
creation  of  spin-offs  and  innovation  transfer. 
The  coalition  agreement  envisions  a  national 

intellectual 

engaging 

over 

in 

(15)  For example, by 43% in China, 25% in the United 
States, 21% in South Korea, and 8% in Japan (all 
numbers are inflation-adjusted); see: kfw.de. 

(16)  EFI, 2026, Gutachten zu Forschung, Innovation und 

Technologischer Leistungsfähigkeit, e-fi.de. 

12 

 
 
 
intellectual  property  strategy  that  should 
enable  the  creation  of  spin-offs  in  24  hours, 
but implementation is pending (see Annex 4).  

Boosting business dynamism is crucial for 
competitiveness,  as  the  old  economic 
structure  increasingly  faces  challenges. 
Economic  transformation  is  intensifying,  with 
insolvencies having reached their highest level 
in  20  years  (see  Annex  4).  Many  German 
regions that once drove growth through strong 
industry  are  now  increasingly  struggling  with 
structural  change  (Annex  18).  As  the  number 
of distressed companies increases, it becomes 
even  more  crucial  to  facilitate  firm  entry  and 
growth  and  speed  up  resource  reallocation 
from  non-viable  companies  to  productive  and 
innovative firms, including start-ups and scale-
ups (17). The number of start-ups increased by 
29%  in  2025,  yet  overall  there  is  no  major 
improvement  compared  with  2018.  Reducing 
administrative  burden  and  improving  digital 
interactions  with  authorities  might  help  to 
encourage business founders (see Annex 5).  

Despite  efforts,  venture  capital  funding 
remains  limited. Germany  received  a CSR in 
2025  to  facilitate  the  diversification  of  the 
economy and business dynamism and to boost 
private 
investment  by  supporting  entre-
preneurship  and  improving  access  to  finance 
for  start-ups  and  scale-ups.  To  address  these 
challenges,  it  has  expanded  public-private 
investment  vehicles  such  as  the  Growth  Fund 
(Wachstumsfonds)  to  mobilise  venture  and 
growth  capital  for  innovative  firms,  with  a 
funding commitment of EUR 17 billion. Despite 
these  promising  initiatives,  venture  capital 
funding  volume  stagnated  in  2025,  and  was 
similar to its 2023 level (see Annex 6). The tax 
treatment of venture capital funds, potentially 
subjecting  them  to  local  trade  tax,  acts  as  a 
deterrent for managing funds in Germany.  

Institutional  investors  could  help  deepen 
venture  capital  markets.  Pension  funds 
rarely  invest  in  venture  capital  (see  Annex  6). 
The  occupational  pensions  reform  aims  to 
boost diversification of portfolios of Pensions-

(17)  German Council of Economic Experts, 2025, Annual 

Report, sachverstaendigenrat-wirtschaft.de. 

13 

kassen  and  Pensionsfonds  from  government 
securities  to  financing  businesses.  However, 
the  sector  remains  fragmented  and  super-
vision  for  some  schemes  is  decentralised.  For 
some  schemes,  benefits  remain  unfunded,  i.e. 
there  is  no  dedicated  pool  of  funded  assets 
backing 
the  pension  promise.  Moreover, 
introducing  automatic  enrolment  in  asset-
backed occupational pension schemes for new 
employees  could  deepen  capital  markets.  Yet, 
an expansion of funded pension schemes may 
increase high domestic savings further.  

Consolidation among banks could improve 
financing  conditions.  Banks  maintain  a 
leading role in the domestic capital market, by 
owning  over  50%  of  total  domestic  financial 
assets.  Their  operational  costs  are  relatively 
high,  as  the  banking  sector  includes  many 
small  institutions.  Facilitating  mergers  across 
Germany’s  three  banking  pillars  (commercial, 
savings  and  cooperative  banks)  and  across 
borders  could  reduce  costs  and  thus  enable 
financing. 
banks 
Establishing  a  portable 
investment  and 
savings  account  in  line  with  the  Commission 
recommendation could boost competition.  

cheaper 

provide 

to 

Modernisation and digitalisation of 
public administration are key to 
improved implementation capacity 

facilitating 

cooperation 

Digital  transformation  is  too  slow  and 
fragmented  to  improve  public  service 
delivery.  The  CSRs  have  long  recommended 
speeding  up  the  digitalisation  of  the  public 
administration,  including  by  improving  the 
geographic  coverage  of  digital  public  services 
and 
between 
levels.  The  Recovery  and 
governmental 
Resilience  Facility  has  supported  several 
measures  to  modernise  public  administration, 
among  them  a  European  identity  ecosystem, 
the  digitalisation  of  public  services  (Online 
Access  Act)  and  the  modernisation  of  data 
registers. Despite these efforts, the availability 
and  uptake  of  digital  public  services  remain 
below  EU  levels,  especially  for  businesses. 
Digitalisation  often  still  mirrors  analogue 
complexity  rather  than  replacing  it,  leading  to 

 
 
significant  dissatisfaction  among  businesses 
with  public  administration  (40%,  EU  average 
24%),  and  suggesting  that  digitalisation  has 
not  reduced  the  time  and  effort  to  obtain  a 
(28%  of  businesses,  EU  average 
service 
25%)(18).  User  feedback  suggests  that  many 
procedures  are  digitalised  only  partially, 
without 
the 
underlying process or improved delivery across 
authorities.  Efforts  to  digitalise  the  judiciary 
could  usefully  continue,  including  via  a  single 
website  giving  access  to  laws  and  court 
decisions  and  providing  digital  solutions  for 
court  proceedings  in  civil,  commercial  and 
administrative cases (19).  

simplification  of 

sufficient 

Graph 2.1: Pre-filled forms 

Source: European Commission, State of the Digital 
Decade report 2025 

Fragmented responsibilities and a lack of 
common  standards  between  levels  of 
government  hinder  modernisation  and 
digitalisation. 
reforms, 
Despite 
significant  overlaps  of  responsibilities  persist, 
and 
competencies  are  an 
implementation bottleneck for service delivery. 

fragmented 

past 

[…] 

intended 

in  Germany 

craft  business 

rolled  out  by 

More than three quarters of not-yet-digitalised 
services  fall  under  Länder  and  municipal 
responsibility. Digitalisation efforts often need 
to  be  coordinated  at  the  federal  level  before 
the  Länder  and 
being 
municipalities. This decentralised roll-out leads 
to  uneven  territorial  coverage  and  limited 
scaling  even  of  solutions 
for 
nationwide  deployment.  This  is  illustrated  by 
the ‘one-for-all’ (‘Einer-für-Alle’) service bundle 
for 
registration,  whose 
implementation  varies  from  around  90%  in 
some Länder to 0% in others (20). The National 
Regulatory Control Council stated in 2025 that 
‘public  administration 
is 
trapped  in  an  implementation  organisation 
that is no longer up to date’. This is particularly 
problematic  in  view  of  mounting  capacity 
pressures  at  subnational  level,  with  around 
30%  of  municipal  employees  expected  to 
retire  by  2030 (21)  (see  Annex  18).  The  low 
share  of  pre-filled  forms  (38%;  EU:  78%), 
points  to  limited  data  sharing  and  weak 
interoperability  of  applications  across  the 
administration  (see  Graph  2.1).  To  address 
is 
this, 
the 
Deutschland-Stack, 
standard 
an 
technology  stack  of  digital  building  blocks  for 
government  services.  However,  its  delivery  is 
still  uncertain.  Successful  state  modernisation 
will  require  multilevel  governance  reform, 
interoperable 
infrastructure 
vertically and horizontally 
the 
(between 
Länder) and bundling of service delivery. 

developing 
open 

Germany 

that 

is 

The business environment would 
benefit from less bureaucracy, a 
stronger single market and better 
digital infrastructure 

The  bureaucratic  burden  remains  high. 
According  to  the  National  Regulatory  Control 
Council,  the  costs  of  complying  with  national 
legislation  fell  in  2025.  However,  the  overall 

(18)  European Commission, 2026, Flash Eurobarometer 568 
on satisfaction with administrative services, europa.eu. 

(20)  Behörden-Digimeter 2026. 

(19)  European Commission, 2025, Rule of Law Report, 

(21)  DStGB, 2025, Demografie: Schleichenden Blackout der 

commission.europa.eu. 

öffentlichen Verwaltung abwenden, dstgb.de. 

14 

020406080100PTLTMTFIDKSEPLBEEEESELNLATSIBGLULVFRHUSKIEITCYHRCZDERO 
  
 
 
to 

the 

plans 

(SMEs) 

interactions 

government 

to  administrative 

burden  remains  high (22),  which  affects  small 
to  medium-sized  enterprises 
in 
particular (23).  Many  businesses  report  delays 
(57%)  and  increased  operational  costs  (36%) 
(24). 
due 
Germany received a CSR to simplify regulation 
and  reduce  administrative  burden.  To  address 
this, 
cut 
administrative  costs  for  businesses  by  25% 
during  this  legislative  period.  The  government 
has  already  introduced  measures  to  reduce 
compliance  costs  by  more  than  EUR 3  billion 
are 
annually. 
examined through ‘reality checks’ with relevant 
stakeholders. However, the ambitious goals do 
not 
by 
be 
a 
fundamentally 
consolidation  of  competencies  that  would 
promote  effective  burden  reduction.  Effective 
tools  could  include  the  wider  use  of  approval 
by  default  and  flat-rate  schemes  rather  than 
exact  case-by-case  verification.  A  thorough 
cost-benefit 
prevent 
assessment 
disproportionate regulation.  

Administrative 

accompanied 

instruments 

processes 

seem 

could 

new 

or 

to 

Recent  economic  volatility  and  trade 
tensions underlined the importance of the 
single  market  for  growth  and  resilience. 
The  single  market  plays  a  significant  role  in 
German  prosperity  as  about  half  of  German 
exports  remain  within  the  EU  (compared  with 
9%  going  to  the  US  and  5%  to  China). 
Deepening  the  single  market  could  generate 
an  extra  3%  of  GDP  for  Germany  (25),  with 
potential improvements in various sectors (26). 
Major  restrictions  remain  regarding  the  free 
movement  of  goods,  services  and  people  and 
the  registration  of  businesses.  Companies 
report  that  divergent  packaging,  labelling  and 
to 
waste 

instance 

related 

rules, 

for 

(22)  National Regulatory Control Council, 2025, Annual 

Report, normenkontrollrat.bund.de. 

(23)  German Chamber of Industry and Commerce, 2025, 

Mittelstand droht dauerhaft abzurutschen, dihk.de. 

(24)  European Commission, 2026, Flash Eurobarometer 568 
on satisfaction with administrative services, europa.eu.  

(25)  Fontagné, L. & Yotov, Y.V., 2025, The low-hanging fruit 

of the single European market, ec.europa.eu. 

(26)  Bernasconi, R. et al., 2026, What is the untapped 
potential of the EU Single Market?, ecb.europa.eu, 
Adilbish, O. et al, 2025, Europe’s productivity weakness, 
imf.org.  

of 

as 

could 

regulatory 

Recognition 

requirements  for  waste  shipment  or  printed 
food  contact  materials,  increase  compliance 
costs  for  foreign  businesses  (see  Annex 5). 
Sometimes,  harmonised  rules  suffer  from 
implementation. 
Easing 
burdensome 
administrative 
regards 
requirements 
implementing  the  rules  on  the  posting  of 
reduce 
workers 
regulatory 
the  single  market, 
fragmentation  within 
facilitate  cross-border  mobility  and  foster 
competitiveness, without undermining workers’ 
protections. 
professional 
qualifications of foreign workers can be time-
consuming,  and 
restrictiveness 
remains high for some professions (see Annex 
5).  National  or  regional  regulations  going 
beyond  the  requirements  of  EU  legislation 
(‘gold 
to  market 
fragmentation.  The 
implementation  of  EU 
regulations  creates  additional  complexity.  For 
instance,  33%  of  businesses  in  Germany 
perceive  data  protection  and  compliance  with 
the  EU  General  Data  Protection  Regulation 
burdensome (EU average 13% (27). The lack of 
transport 
cross-border 
infrastructure  creates  a  further  barrier  to  the 
free flow of goods and people (see Annexes 9 
and  19).  For  example,  a  missing  rail  link 
connecting  Germany  to  the  Brenner  tunnel 
creates  a  gap  in  a  major  EU  freight  corridor. 
Finally,  the  banking  sector  remains  highly 
fragmented, in part due to political  resistance 
to foreign acquisition (see Annex 6). 

plating’) 

energy 

also 

add 

and 

the  need 

in  2025  highlighted 

Germany needs to continue expanding its 
digital  connectivity  infrastructure.  The 
CSRs 
to 
accelerate  the  roll-out  of  very  high-capacity 
digital communication networks, also involving 
the  private  sector.  In  a  welcome  step,  the 
Telecommunications Act has been amended to 
create an overriding public interest for network 
development.  Fibre-to-the-premises  coverage 
increased  to  36.8%  in  2024  (EU:  69%)  but  is 
still  the  second  lowest  in  the  EU.  Coverage  is 
generally better in northern regions. Swift and 
effective  implementation  of  the  acceleration 
pact between the federal government and the 
Länder can speed up progress.  

(27)  European Commission, 2026, Flash Eurobarometer 568 
on satisfaction with administrative services, europa.eu.  

15 

 
 
 
DECARBONISATION, ENERGY AFFORDABILITY AND 
SUSTAINABILITY 

progressing  slowly.  The  2025  CSR  calls  for 
investments  in  energy  systems,  including  by 
upgrading  the  electricity  system  and  ensuring 
cost-efficient  expansion  and  flexibility. 
In 
transmission  grid  expansion  saw 
2025, 
significant  progress  in  planning,  approval  and 
construction.  This  progress  was  mainly  driven 
by accelerated approval procedures.  2 000 km 
of  new  transmission  grids,  1 280 km  of  them 
newly built, were approved at the federal level 
in  2025,  an  increase  of  45%  compared  with 
2024 (28).  However,  the  transmission  grid 
continues  to  represent  a  bottleneck.  This 
causes 
redispatch  costs,  which,  although 
declining  since  their  peak  in  2022,  have 
remained  close  to  EUR  3 billion  annually  over 
the  past  four  years  (see  Graph  3.1).  These 
costs amount to roughly 0.7 cents per kWh on 
average, indicating avoidable inefficiencies. 

Even  with  rising  investment,  distribution 
grids  remain  strained  and  digitalisation 
efforts,  including  smart  meter  roll-out, 
continue  to  fall  short.  Distribution  grid 
investments  have  consistently  increased  in 
recent years, with EUR 12.4 billion invested in 
2024  and  EUR  14.7  billion  planned  in  2025. 
However, distribution grid operators (DSOs) are 
subject  to  increasing  demands.  Connection 
requests, particularly for large battery storage 
systems,  can  only  be  processed  with  delays. 
Meanwhile,  shortages  and  price  increases  of 
material and labour pose a growing challenge 
for  cost-efficient  modernisation (29).  At  the 
same  time,  the  fragmentation  of  distribution 
grids,  with  more  than  850  DSOs  operating  in 
Germany (30),  and  disparities  in  financial  and 
administrative  capacities  lead  to  significant 

(28)  Source: Bundesnetzagentur. 

(29)  dena, 2026, Großbatteriespeicher effizient integrieren, 

dena.de. 

(30)  Bundesnetzagentur, Bundeskartellamt, 2025, 
Monitoringbericht, bundesnetzagentur.de. 

to 

(CSRs) 

country-specific 
2025 
The 
on 
called 
recommendations 
Germany 
its 
reduce 
further 
dependence on fossil fuels and accelerate 
the expansion of renewable energy, while 
strengthening investment in efficient and 
integrated  energy  systems, 
including 
electricity  grids,  flexibility  solutions  and 
digital 
The 
recommendations  also  emphasised  the  need 
to  accelerate  decarbonisation  in  the  buildings 
and  transport  sectors,  including  through  rail 
network renovation.  

infrastructure. 

and 

auction 

approval 

volumes. 

renewable 

procedures 

Overall,  progress  has  been  mixed.  Grid 
electricity 
investments 
deployment  have  advanced,  supported  by 
accelerated 
and 
increasing 
However, 
important  structural  challenges  remain.  There 
is  not  enough  flexibility  in  the  electricity 
market,  as  the  digitalisation  of  electricity 
networks and the roll-out of smart meters are 
also  progressing  slowly.  Fossil  fuels  still 
dominate 
the  overall  energy  mix,  and 
electricity  prices  remain  structurally  high,  as 
prices  are  set  in  most  hours  by  fossil  fuel 
generation.  Decarbonisation  in  buildings  is 
advancing  only  gradually  due 
low 
renovation rates, while progress in transport is 
uneven,  with  stronger  developments  in  road 
infrastructure 
in 
electrification 
modernisation.  

than 

rail 

to 

Investments in grids have 
increased, but digitalisation 
benefits remain largely untapped   

infrastructure 

Modernising  energy 
in 
Germany  has  progressed  unevenly.  Grid 
expansion has increased significantly in recent 
years,  while  the  digitalisation  of  grids  is 

16 

 
 
 
regional  differences  in  grid  connections  and 
the  deployment  of  smart  meters,  whose 
overall  roll-out  remains  exceptionally  slow.  As 
of  December  2025,  only  5.5%  of  customers 
were  equipped  with  smart  meters  compared 
in  the  EU (31).  Expanding  and 
with  63% 
modernising  the  electricity  grid  in  a  cost-
efficient  way  remains  a  key  prerequisite  for 
aligning electricity demand, renewable energy, 
and  storage.  The  digitalisation  of  distribution 
grids is  a  key  lever  as smart  grids  can  detect 
bottlenecks  earlier,  enable  more  efficient 
improve  system 
expansion  planning  and 
stability.  

Graph 3.1: Redispatch volumes and costs in 
Germany, 2019-2025 

(i) Upward redispatch refers to increasing electricity feed-in (esp. 
gas and coal power plants). Downward redispatch refers to 
reducing feed-in (esp. wind and solar photovoltaics). Total 
redispatch costs include compensation to generators for 
additional electricity produced under upward redispatch and 
reimbursements for reduced production under downward 
redispatch. 
(ii) Volume and costs for 2025 including January-November. 
Source: Bundesnetzagentur; Fraunhofer ISE Energy-Charts 

Further reducing fossil fuel 
reliance to structurally lower 
energy prices 

in 

(PPAs). 

expanding 

Progress 
renewable 
electricity  capacity  was  significant,  but 
fossil  fuels  continue  to  play  a  structural 
role  in  the  energy  system.  The  2025  CSR 
calls for a reduction in fossil fuel dependence 
and faster renewable expansion. Germany has 
accelerated  the  deployment  of  renewable 
energy  capacity  in  recent  years,  supported  by 
large  auction  volumes  and  strong  activity  in 
the  market  for  long-term  renewable  power 
purchase  agreements 
In  2025, 
renewable  energy  sources  accounted  for 
61.1% of Germany’s electricity generation, but 
the  price  was  set  by  fossil-fuel-generated 
electricity  at  58%  of  the  hours  and  coal  still 
accounted  for  23%  of  the  mix.  Despite  the 
in  renewable  deployment,  fossil 
advances 
energy 
still 
fuels 
dominated 
In  2024,  oil  accounted  for 
consumption. 
roughly  37%  of  gross 
inland  energy 
consumption, natural gas for 26% and coal for 
compared  with  about  20%  of 
15%, 
renewables (32),  a  1 percentage  point  increase 
compared  with  2023.  Thus,  further  efforts 
would be beneficial to continue the roll-out of 
renewable  capacity  while  ensuring  security  of 
supply through sufficient system flexibility and 
dispatchable capacity.  

overall 

Legal  pathways  to  increased  renewable 
energy  have  been  strengthened,  but 
efficient 
requires 
system  operation 
further  flexible  solutions.  With  the  entry 
into  force  of  legislative  acts,  such  as  the 
Hydrogen Acceleration Act and the Geothermal 
Energy  Acceleration  Act (33), 
legal 
for  clean  energy  has  been 
framework 
strengthened.  However,  Germany’s  enabling 
infrastructure  for 
industry  decarbonisation 
could  usefully  be  rolled  out  further.  The 
development  of  CO₂  transport  and  storage 
infrastructure  is  facing  delays.  Lengthy  and 

the 

(31)  Bundesnetzagentur, 2025, Roll-out of intelligent 

metering systems:,  bundesnetzagentur.de; Berg Insight, 
2025, Smart Metering in Europe, berginsight.com. 

(32)  Eurostat, 2024, Energy Balances, Eurostat. 

(33)  Bundesgesetsblatt, 2025, Geothermal Energy 

Acceleration Act, recht.bund.de. 

17 

00.511.522.533.544.50510152025303540452019202020212022202320242025Costs (billion EUR)Redipspatch volume (TWh)Upward RedispatchDownward RedispatchTotal Redispatch Costs 
   
 
 
complex  permitting  for  industry  installations 
hinders the swift deployment of clean industry 
technologies,  undermining  decarbonisation 
efforts. As part of the Recovery and Resilience 
Facility  (RRF),  Germany  has  introduced  the 
Wind  Energy  on  Land  Act  and  the  Offshore 
Wind  Energy  Act  to  accelerate  wind  power 
deployment.  Under  the  RRF  and  the  European 
Regional  Development  Fund  (ERDF),  Germany 
is 
in  hydrogen  capacity.  The 
integration  of  growing  shares  of  variable 
renewable  energy  requires  increasing  system 
flexibility  to  balance  fluctuations  in  wind  and 
solar  output  and  ensure  security  of  supply. 
Market-based  mechanisms  that  encourage 
flexibility  solutions,  such  as  storage,  demand 
response  and  other  balancing  resources,  are 
increasingly  important  for  efficient  system 
operation as renewable capacity expands.  

investing 

The  continued  reliance  on  fossil  fuels  in 
the  energy  mix  is  also  reflected  in  high 
prices,  despite  fiscal  interventions.  In 
2025,  Germany  abolished  the  gas  storage 
levy,  reduced  grid  fees  and  the  electricity  tax, 
subsidised  electricity 
for  energy-intensive 
industry  and  financed  the  renewable  energy 
sources  surcharge  from  the  federal  budget. 
Despite  these  interventions,  electricity  prices 
have  remained  high,  with  households  paying 
31%  more  than  the  EU  average.  Electricity 
prices for non-household consumers, including 
industry,  were  7%  above  EU  average  (see 
Annex 9).  

regional 

High electricity wholesale prices occur at 
times  of  low  renewables  output  paired 
with  high  demand,  in  particular  in  the 
evenings.  Germany’s  energy  system 
is 
characterised by high shares of wind and solar 
power  and 
imbalances  between 
generation and demand. It would therefore be 
highly beneficial to expand storage capacity in 
order to shift excess renewables generation to 
periods  of  high  demand.  This  would  reduce 
peak  prices  and  limit  the  need  for  expensive 
marginal  generation.  More  storage  capacity 
would  help  prevent  negative  price  episodes 
during  periods  of  high  renewable  generation 
and  alleviate  grid  congestion  by  reducing  the 
long-distance 
need 
electricity flows. 

for  curtailment  and 

On  top  of  high  wholesale  prices  come 
network  charges  and  electricity  taxation 
that  are  among  the  highest  in  the  EU. 
Network 
charges  are  driven  by  grid 
reinforcement  needs,  an  inefficient  bidding 
zone  and  the  low  level  of  smart  meter 
deployment.  More  north-south  transmission 
capacity  and 
interconnector 
cross-border 
capacity  could  provide  further  flexibility  and 
bridge supply gaps. Increasing digitalisation of 
between 
the 
distribution  system  operators  and 
retail 
suppliers and demand-driven solutions such as 
dynamic grid fees could help lower prices. 

cooperation 

closer 

grid, 

instability 

Germany  introduced  a  range  of  short-
term  measures  to  address  rising  fuel 
costs,  though  some  of  these  counteract 
with  longer-term  decarbonisation  goals. 
In  response  to  recent  energy  price  spikes 
linked  to 
in  the  Middle  East, 
Germany temporarily reduced fuel taxes by 17 
cents per litre, thereby distorting price signals 
and  dampening  incentives  to  shift  away  from 
fossil  fuels  at  a  time  when  other  European 
countries  have  prioritised  supporting  clean 
alternatives.  Additional  measures 
included 
coordinating  the  release  of  emergency  oil 
reserves  with 
restricting  petrol 
stations  to  a  single  daily  price  increase  at 
noon, and introducing a reversal of the burden 
of  proof  for  fuel  pricing:  as  of  1  April, 
refineries  and  wholesalers  are  required  to 
justify how their prices are composed, with the 
starting presumption being that refinery prices 
must be cost-justified (see Annex 9).  

IEA, 

the 

Uneven progress in buildings and 
transport decarbonisation  

Germany made moderate progress on the 
decarbonisation  of  buildings.  The  2025 
CSR  calls  for  the  process  of  decarbonising 
buildings  to  be  accelerated.  A  reduction  in 
energy  consumption  could  be  observed, 
reflecting  efficiency  gains  and  behavioural 
changes. However, with renovation rates below 
1%  per  year,  progress  remains  too  slow  to 
meet climate goals (see Annexes 8 and 9). The 
RRF  has  made  a  significant  contribution  to 

18 

 
in 

energy 

solutions 

improving  energy  efficiency  in  buildings  via 
numerous  measures,  such  as  energy-efficient 
building  renovations  and  municipal  living  labs 
serving  as  real-world  testing  grounds  for 
urban 
integrated 
neighbourhoods.  Moreover,  the  Climate  and 
Transformation  Fund  (KTF)  supports  energy 
efficiency  with 
the  EU 
revenues 
emissions  trading  system  (ETS).  However,  the 
planned  reform  of  the  Building  Energy  Act 
would 
legislated 
requirements  for  switching  to  climate-friendly 
heating  solutions,  allowing  the  continued 
installation of gas and oil boilers in residential 
buildings. 

previously 

abolish 

from 

through 

including 

Germany  has  made  notable  progress  in 
decarbonising  road  transport.  The  2025 
CSR  calls  for  faster  decarbonisation  of 
transport, 
rail  network 
renovation.  Progress  has  been  most  visible  in 
road  transport,  with  a  marked  increase  in 
electric vehicle uptake. In 2025, almost one in 
five  newly  registered  cars  in  Germany  had  a 
purely  battery-electric  drive 
(19.1%).  This 
represents  a  significant  increase  compared  to 
the previous year (13.5%). The public charging 
network  also  expanded  further  to  around 
200 830  charging  points  (8  GW  capacity)  by 
April  2026(34),  with  relatively  low  utilisation 
rates  suggesting  that  capacity  is  sufficient 
even  for  future  demand.  Measures  under  the 
recovery and resilience plan contributed to this 
expansion,  including  investments  in  publicly 
accessible  charging  infrastructure  and  zero-
emission commercial vehicles. While measures 
to  decarbonise  road  transport  are  advancing, 
high  acquisition  costs  remain  a  constraint  for 
businesses  and  consumers (35)  and  progress 
remains too slow to bring the transport sector 
in  line  with  Germany’s  climate  goals  (see 
Annex 8).  

Progress  in  rail  remains  limited  despite 
substantial  financial  commitments  to 
infrastructure  renovation.  Total  spending 
on rail  infrastructure reached EUR 23.1 billion 
in  2025,  including  EUR  18.1  billion  in  federal 
investment. While  this  constitutes  an  increase 

(34)  Bundesnetzagentur, 2026, bundesnetzagentur.de.  

could  have  been  greater.    

and 

funding, 

increased 

north-south 

compared  to  previous  years,  the  additional 
impact  of  the  newly  created  Special  Fund  for 
Infrastructure  and  Climate  Neutrality  on 
investments 
infrastructure 
Despite 
remains  heavily  utilised,  notably  on  key  east-
west 
trans-European 
transport  network  (TEN-T)  axes  around  urban 
nodes  and  major  ports.  Digital  deployment  is 
uneven,  and  the  punctuality  of  long-distance 
services  remains  low  (around  62-63%  versus 
87%  in  the  EU (36),  indicating  that  renovation 
into  a 
efforts  have  not  yet 
structurally  more  reliable  and  higher-capacity 
network  (see  Annex  8).  Furthermore,  the  roll-
out  of  the  European  Rail  Traffic  Management 
System – the EU-wide digital signalling system 
needed to increase capacity and enable cross-
border  operations  –  remains  particularly  slow. 
At  the  end  of  2024,  only  about  5%  of 
Germany’s  core  European  rail  corridors  were 
equipped  with  this  system,  well  below  the  EU 
average of 17% (37). Total transport emissions 
exceed  national 
targets  and 
increased  by  1.4%  between  2024  and  2025 
(38). 

translated 

reduction 

Addressing biodiversity loss and 
strengthening climate resilience 

Biodiversity  loss  and  water  resilience 
remain  significant  challenges,  with  many 
habitats in an unfavourable condition and 
persistent investment gaps. Germany faces 
considerable  challenges  in  combating  nature 
degradation,  which  poses  significant  risks  to 
biodiversity  and  the  economy  (39).  More  than 
half  of  Germany’s  habitat  types  are  in  an 
unfavourable  condition,  with  60%  showing 
insufficient  or  poor  conservation  status  (see 
Annex  10).  Despite  rich  biodiversity,  many 

(36)  European Commission, 2025, Commission Staff 

Working document on the Ninth monitoring report on 
the development of the rail market, EUR-Lex.europa.eu. 

(37)  European Commission, 2026. ERTMS, see: op.europa.eu.  

(38)  Umweltbundesamt, 2026, Umweltbundesamt.de. 

(39)  European Environment Agency, 2025, Germany country 

(35)  bdew, 2025, BDEW-Elektromobilitätsmonitor, bdew.de.  

profile, EEA.europa.eu. 

19 

 
 
 
designated  protected  areas  do  not  meet  the 
criteria  of  the  EU  biodiversity  strategy’s  30% 
protected  area  target.  National  initiatives,  like 
the  action  plan  on  nature-based  solutions  for 
climate and biodiversity, aim to address these 
issues,  but  efforts  are  hindered  by  funding 
shortfalls, with a biodiversity financing gap of 
EUR 638 million annually. In addition, seasonal 
water  scarcity  and  a  very  low  share  of  water 
bodies  with  good  ecological  and  chemical 
status  put  pressure  on  biodiversity  and 
economic  activities  that  rely  on  water  (see 
Annex  10).  Strengthening  site  management 
and  boosting  investment  are  essential  to 
bolster the resilience of ecosystems and water 
bodies  and  protect 
from 
vulnerabilities  stemming  from  its  dependence 
on ecosystem services. 

the  economy 

Further  progress  would  be  beneficial  in 
order  to  strengthen  climate  adaptation 
and  resilience.  Significant  investments  in 
climate adaptation are crucial for Germany. An 
estimated EUR 9.6 billion annually up to 2050 
would  be  of  benefit,  focusing  primarily  on 
infrastructure  retrofitting 
(see  Annex  10). 
While progress has been made at subnational 
level,  with  regions  like  Hamburg  and  Bremen 
adopting 
strategies, 
transparency  gaps  persist,  as  documentation 
remains decentralised across regional (Länder) 
ministries.  Nature-based  solutions  promoted 
through  projects,  such  as  ‘LIFE  Living  River 
Lahn’,  which  receives  support  from  the  EU, 
show  promise  but  depend  on  overcoming 
municipal  capacity  issues  and  securing  long-
term  financing.    Scaling  up  these  solutions  is 
critical  to  enhancing  resilience  and  meeting 
future climate challenges effectively. 

adaptation 

new 

20 

 
SKILLS, QUALITY JOBS AND SOCIAL FAIRNESS 

(CSRs) 

received 

country-specific 
Germany 
in  2025  to 
recommendations 
increase  its  labour  supply,  strengthen 
skills,  attract  and  retain  talent,  improve 
education  outcomes  and  improve  early 
childhood education and care and  all-day 
schools.  Since  then,  measures  have  been 
implemented  to  increase  the  labour  supply  of 
older  workers  and  people  receiving  social 
assistance.  It  also  continued  work  on  its 
Startchancen  programme,  which  aims 
to 
improve  opportunities 
for  disadvantaged 
students, and on rolling out childcare provision 
and all-day schools. 

older 

provided with additional incentives to work by 
reinforcing  the  conditionality  of  minimum 
income  support.  Going  beyond  these  reforms, 
the  Welfare  State  Commission  suggested 
simplifying benefits and gradually withdrawing 
them to increase work incentives. Furthermore, 
for 
be 
implemented 
effective 
raise 
retirement  age,  including  by  tightening  the 
conditions for early retirement (see Section 1); 
providing  incentives  for  older  workers  laid  off 
in  manufacturing  to  remain  employed  instead 
of retiring; and adopting labour market policies 
to  support  longer  healthy  working  lives  (see 
Annexes 3, 11, 12, 13 and 14). 

people, 
to 

policies 

could 

their 

Adjusting  the  tax  and  benefit  system 
could  make  the  system  fairer  and  more 
efficient.  As  the  Welfare  State  Commission 
(Sozialstaatskommission)  suggested,  social 
benefits  could  be  simplified  and  benefit 
improve  work 
withdrawal  adjusted 
incentives.  Second  earners  still  face  tax 
disincentives,  and  despite  progress,  there  are 
provision  gaps  in  nurseries  and  kindergartens, 
all-day  schools  and  long-term  care.  These 
stand  in  the  way  of  increasing  hours  worked. 
Accelerating measures to attract foreign talent 
and  stepping  up  resources  on  education  and 
adult learning could expand the talent pool.  

to 

Enhancing labour supply is key for 
the economy and social inclusion 

Increasing  employment,  enabling  more 
hours  worked  and  addressing  skills 
shortages  are  key  to  counteracting  the 
effects  of  demographic  ageing.  In  2025, 
Germany  received  a  CSR  to  increase  labour 
supply,  notably  by  increasing  hours  worked. 
Recently  adopted  reforms  aim  to  increase 
employment  after  the  retirement  age,  though 
the  size  of  the  effects  on  labour  supply  is 
uncertain  (see  Section  1).  Job  seekers  were 

Further  tax  and  benefit  reforms  could 
encourage women to increase their hours 
worked. Labour shortages  have eased due to 
weak economic growth, but remain structurally 
high  and  may  increase  again  with  economic 
recovery.  Demographic  ageing  is  expected  to 
reduce the working age population by 4 million 
by  2035.  Along  with  declining  net  migration, 
this will exacerbate skills shortages (see Annex 
11). Unless countermeasures are taken, future 
GDP growth in Germany is expected to be low 
due  to  the  decline  in  employment  and  hours 
worked  (see  Graph  4.1).  Recent  reforms  to 
support  full-time  employment  have  focused 
on  expanding  early  childhood  education  and 
care  and  promoting  all-day  schools 
(see 
Annexes  11  and  13).  Informal  caregiving 
responsibilities,  mainly  carried  out  by  women, 
contribute to Germany’s high rate of part-time 
employment among women (40). A federal and 
state  level  commission  proposed  reforms  in 
long-term  care  which  could 
improve  the 
availability  and  quality  of  care  while  ensuring 
fiscal  sustainability.  These  reforms  would 
indirectly  support  the  employment  of  carers, 
who are mostly women. Further tax and social 
security  incentives  could  help  to  increase  the 

(40)  Statistisches Bundesamt, destatis.de.  

21 

 
 
 
(iii) 

number  of  hours  worked  by  women.  These 
incentives  could  be  brought  about  by 
reforming  (i)  the  taxation  of  the  income  of 
married  couples  (Ehegattensplitting);  (ii)  the 
non-contributory co-insurance of spouses with 
no  or 
the 
limited  earnings;  and 
disincentives  in  benefits  and  social  security 
contributions  to  move  from  part-time  to  full-
time  work.  The  costs  of  early  childhood 
education and care for those in need could be 
reduced 
for 
incentives 
transitioning 
part-time 
from  marginal 
employment  to  regular  employment.  Such 
reforms could also help reduce the size of the 
low-wage  sector  and  support  employment 
with  better  pay  and  career  prospects  (see 
Section  1  and  Annexes  3  and  11).  Along  with 
improved  pay  transparency,  they  could  not 
only  improve  labour  supply  and  potential 
growth  in  Germany  (see  Graph  4.1),  but  also 
reduce  gender  gaps  in  hours  worked,  lifetime 
incomes, pensions and poverty. 

created 

and 

Graph 4.1: Components of potential growth 

* forecast 
Source: European Commission spring 2026 forecast 

Skills could be better aligned with 
changing labour market needs 

Policies  that  support  the  training  of 
people with lower qualifications and with 
a  migrant  background  could  help  tackle 
skills shortages.  In 2025, Germany  received 
a CSR to increase labour supply  and  to tackle 
the  shortage  of  skilled  workers,  including  by 

22 

is 

to 

training 

important 

in-company 

apprenticeship 

implementation 

strengthening basic, green and digital skills. To 
address  this,  Germany  continued  its  national 
skills  strategy  and  planned  to  launch  a  ‘skills 
offensive’,  with  a  digital  skills  pact  and  a 
funding  programme  for  digital  participation, 
whose 
(see 
Annexes  4  and  13).  Measures  include  support 
for 
and  modular 
education and training courses. The latter aim 
to  support  the  labour  market  integration  of 
people above the age of 25 without vocational 
qualifications. Skills policies could improve the 
access  of  vulnerable  groups,  such  as  low-
income  youth  and  people  with  migrant 
backgrounds, 
training 
through  individualised  support.  The  relevance 
and value added of vocational education could 
be  increased  through  additional  funding  for 
vocational  schools, 
including  for  targeted 
support  and  improvements  to  their  digital 
infrastructure. In existing programmes such as 
DigitalPakt 2.0, the focus on rural areas could 
be  stepped  up.  For  people  with 
lower 
qualifications,  combining  adult  learning  with 
particularly 
support  measures 
beneficial. These measures could address gaps 
in their basic skills and barriers to their access 
to  training,  such  as  language  skills  or  mental 
health  and  psycho-social  support.  Data-driven 
tools, 
the  planned  Bildungs-
verlaufsregister,  an  anonymous  educational 
trajectory  register,  and  the  Schüler-ID,  a 
personalised  pupil  ID,  can  improve  access, 
transitions and long-term skilled labour supply 
by guiding targeted interventions. 

such  as 

can 

be 

to 

tools 

support 

As  manufacturing  employment  declines, 
policy 
job-to-job 
transitions  need  to  gain  relevance.  Thus 
far,  increasing  public  sector  employment  has 
compensated for the decline of employment in 
manufacturing. With intensifying pressures for 
structural  change,  policy  tools  to  manage 
transitions in the labour market are becoming 
more 
regional 
employment  hubs  (Arbeitsmarktdrehscheiben) 
and  of  transfer  short-time  work  (Transfer 
Kurzarbeit)  could  be  evaluated  and  good 
practices 
among 
be 
companies.  Enhancing  the  training  component 
of short-time work can help this instrument to 
facilitate the transition of sectors from decline 
to  growth.  Prolonged  use  of  short-time  work 
beyond  one  year  could  be  accompanied  by 

promoted 

relevant. 

could 

The 

use 

of 

-1012151617181920212223242526*27*28*29*30*EmploymentHours workedCapital acc.TFPPot. Growth 
   
training  participation.  Policies  to  promote 
regional labour mobility could prevent regional 
disparities from being exacerbated.  

Skilled migration efforts show 
promise, but more reforms needed 

of 

for 

recognition 

Recent  measures  to  support  migration 
are  likely  to  have  an  impact  only  at  a 
later  stage.  In  2025,  Germany  received  a 
CSR  to  better  attract  and  retain  talent  from 
non-EU  countries  in  order  to  increase  the 
labour  supply  and  tackle  shortages  of  skilled 
workers.  To  digitalise  and  accelerate  skilled 
immigration processes, a digital work-and-stay 
agency will establish a central portal as single 
access  point  for  skilled  workers,  including  the 
foreign 
application 
qualifications.  Furthermore,  by  end-2028,  the 
work  ban  for  people  claiming  asylum  is 
expected  to  be  reduced  to  a  maximum  of 
three  months.  These  two  new  measures  will 
only  have  a  medium-  to-long-term  impact  on 
the shortage of skilled  workers and on labour 
supply. Further improvements and investments 
are needed regarding the visa and work permit 
process, 
local 
immigration authorities and the procedures for 
the  recognition  of  foreign  qualifications  in 
order  to  maximise  the 
impact  of  recent 
national 
reforms  aiming  at  modernising 
migration  administration  by  digitalisation  and 
improving data exchange across agencies (41).  

the  procedures  at 

the 

The  labour  market  integration  of  people 
with  a  migrant  background  could  be 
better  supported.  The  initiative  ‘Regional 
Integration Networks for a Culture of Welcome 
and  Recognition  of 
International  Workers’ 
supports  the  labour  market  integration  of 
people  with  a  migrant  background.  The 
number  of  recognised  foreign  qualifications 
has  increased  significantly  over  time,  from 
28 000  procedures  closed  in  2016  to  82 000 
recognition 
in  2024.  More  and  more 
applications  are  submitted  from  abroad,  with 

them  EU  nationals)  work 

their  share  having  risen  from  11%  of  all 
applications  to  41%.  Further  measures  to 
ensure  that  people  from  outside  Germany 
(among 
in 
professions matching their qualifications could 
contribute  to  addressing  skills  shortages, 
including  in  regulated  professions  (see  Annex 
5).  To  reduce  the  employment  gaps  between 
German  nationals  and  people  with  a  migrant 
background  (42),  procedures  in  migration  and 
asylum administration could be streamlined, to 
reduce  barriers  for  apprentices  and 
job 
applicants.  

Gaps in early childhood education 
and care as well as high early 
school leaving are major problems 

in 

investment 

to 
there 

recent  years, 

Full  use 
is  not  being  made  of  the 
potential  of  early  childhood  education 
and  care  and  all-day  schools  to  boost 
labour  market  participation. 
In  2025, 
Germany  received  a  CSR  to  improve  the 
availability  and  quality  of  early  childhood 
education  and  care  and  all-day  schools  to 
encourage  carers,  often  women,  to  work  and 
to promote equal opportunities for all children. 
However,  despite 
increase 
is  still 
capacity 
significant  unmet  demand  for  early  childhood 
education  and  care.  There  remains  a  supply 
gap  of  300 000  childcare  and  kindergarten 
places as of now, and 150 000 all-day school 
places  still  need  to  be  created  by  2029.  The 
investment planned under the Special Fund for 
Infrastructure  and  Climate  Neutrality  could 
provide  further  support.  The  legal  right  to  all-
day  schooling  for  primary  pupils  as  of  school 
year 2026/2027 is a step in the right direction, 
even if this right may only be partially fulfilled 
initially.  Speeding  up  the  implementation  of 
the proposals made in the coalition agreement 
to  improve  the  quality  of  provision  (Sprach-

(41)  Bertelsmann  Stiftung,  2023,  An  den  Grenzen? 
Ausländerbehörden  zwischen  Anspruch  und  Alltag. 
bertelsmann-stiftung.de. 

(42)  Germany  has  one  of  the  largest  gaps  in  employment 
rate of nationals (84.2%) vs non-EU nationals (64.6%), 
and  between  people  born  in  Germany  (80.1%)  vs 
people born outside the EU (66.5%). 

23 

 
 
 
Kitas and Startchancen-Kitas (43) and  the roll-
language 
out  of  nationwide  standardised 
support  would  contribute 
to  basic  skills 
acquisition,  especially  for children  who  do  not 
have  German  as  their  mother  tongue  and  for 
children from a disadvantaged socio-economic 
background. 

Graph 4.2: Early school-leavers 

in the right direction. However, with its aim of 
reaching  10%  of  Germany’s  40 000  schools 
by 2034/2035, the coverage of learners at risk 
of  underachievement  may  be  incomplete.  The 
the  education  system  has 
structure  of 
remained  unchanged,  encouraging 
early 
tracking  by  ability  and  reinforcing  inequality 
from  an  early  age.  While 
in 
education  has  increased  over  time,  coming 
closer  to  the  EU  average  (4.5%  vs  4.7%  of 
GDP  in  2023),  further  efforts  could  expand 
targeted  support  for  underachieving  pupils, 
starting from an early age.  

investment 

of 

capital 

human 

(see  Graph  4.2).  Against 

Human  capital  is  lost  as  more  young 
people  miss  out  on  qualifications.  Almost 
one in seven of Germany’s young people (18-
24-year-olds) left  education  and  training  with 
no or with very low qualifications. While in the 
EU  the  number  of  early  leavers  is  falling,  in 
Germany it is one of the highest in the EU and 
increasing 
the 
background  of  demographic  ageing,  skills 
shortages  and  a  stagnating  economy,  this 
underutilisation 
is 
significantly  restricting  the  size  of  the  skilled 
force  and  undermining  Germany’s 
work 
for  higher  productivity  growth. 
potential 
Decisive 
include 
action 
policy 
collaboration between the federal government 
and  the Länder to help  at-risk learners. These 
efforts  could  be  supported  by  better  use  of 
data  (such  as  the  anonymous  educational 
trajectory  register 
(Bildungsverlaufsregister) 
proposed  in  the  coalition  agreement,  however 
not  yet  implemented).  Combining  preventive 
measures 
the 
as 
acquisition  of  basic  skills,  psycho-social 
support  and  the  enforcement  of  mandatory 
schooling  or  training  until  the  age  of  18)  and 
remedial  measures  (such  as  flexible  learning 
pathways)  (see  Annex  13)  could  support 
learners at a socio-economic disadvantage.  

strengthening 

could 

(such 

There is scope to improve cost-
efficiency of the welfare system 

Source: Eurostat 

The  decline  in  basic  skills  and  widening 
socio-economic  inequalities  in  education 
outcomes  would  benefit  from  further 
action. While the 2025 CSRs for Germany call 
on it to improve education outcomes, including 
by  promoting  excellence  and  providing 
targeted  support  to  disadvantaged  groups, 
limited  progress  has  been  observed.  Germany 
has  seen  a  marked  drop  in  basic  skills  since 
in  education 
2015  and  declining  equity 
outcomes, 
top-
performance.  The  2015  strategy  to  support 
high-potential  students  led  to  the  'Leistung 
macht  Schule'  initiative,  for  which  the  federal 
and 
state  governments  are  mobilising 
EUR 125  million,  with  implementation  in  850 
schools starting in 2023. Results will take time 
to materialise and the initiative will have to be 
rolled out on a larger scale to show a systemic 
effect.  The  Startchancen  programme,  which 
for 
seeks 
disadvantaged  students,  is  an  important  step 

opportunities 

alongside 

declining 

improve 

to 

(43)  Startchancen-Kitas  offer  additional  financial  resources 
and  opportunities  for  disadvantaged  children,  while 
Sprach-Kitas  focus  on  improving  German  language 
development. 

Poverty and inequality remain challenges, 
as  housing,  energy  and  everyday  living 

24 

024681012201520172019202120232025% of aged 18-24DEEU 
   
 
costs  rise (44). 
In  2025,  21.2%  of  the 
population  was  at  risk  of  poverty  or  social 
exclusion (AROPE),  roughly  in  line  with  the  EU 
average.  However,  behind  this  overall  figure, 
there  are  pockets  of  vulnerability.  Risks  are 
particularly pronounced in urban areas, among 
the unemployed, single-parent households and 
for people born outside the EU. The number of 
households  with  very  low  work  intensity  has 
increased  in  recent  years,  suggesting  that 
maintaining  a  stable  foothold  in  the  labour 
market is becoming more difficult.  

With  nearly  every  fourth  child  at  risk  of 
poverty or  social  exclusion,  child  poverty 
remains  a  pressing  concern.  The  share  of 
children  at  risk  of  poverty  or  social  exclusion 
rose  from  22.9%  in  2024  to  23.4%  in  2025. 
Children  with  a  migrant  background  are 
disproportionately  affected,  and  structural 
factors  such  as  shortages  in  early  childhood 
education  and  care,  and  persistent  gaps  in 
educational outcomes linked to parental socio-
limit 
economic  background,  continue 
progress (45).  Germany’s  2023  action  plan 
implementing  the  European  Child  Guarantee 
aims to address these issues, but success will 
depend  on  sustained  funding  and  stronger 
implementation at local level. 

to 

Reforms could increase the efficiency and 
effectiveness  of  the  welfare  system.  The 
welfare  system  is  complex  and  fragmented, 
with  more  than  170  benefit  schemes  and 
around  30  different  administering  bodies (46). 
This complexity can make the system difficult 
to  navigate  and  may  prevent  some  eligible 
households  from  receiving  support.  The  2026 
report  of  the  Welfare  State  Commission 
proposes  reforms  to  simplify  the  welfare 
system  and  make  it  more  efficient (47).  The 
government  decided 
the 
Bürgergeld system of basic income support for 

transform 

to 

on 

rules 

housing 

to  encourage 

into  a  new  minimum 

income 
jobseekers 
scheme  (neue  Grundsicherung).  The  reform 
introduces  stricter  conditionality  and  stronger 
sanctions 
labour  market 
participation.  While  these  changes  could  help 
improve  administrative  efficiency  and  reduce 
long-term  benefit  dependence, 
they  also 
create  new  social  risks:  stricter  sanctions  and 
costs  may 
tighter 
disproportionately  affect  vulnerable  groups, 
including  families  with  children,  people  with 
mental  health  conditions  and  individuals  with 
limited  German  language  skills.  Implementing 
the hospital  reform and the proposed primary 
care  reform  could  help  to  contain  increasing 
healthcare  expenditure  and  curb  further  rises 
in  social  security  contributions.  Levers  include 
strengthening  prevention,  enhancing 
the 
integration  of  care  and  reducing  the  reliance 
on inpatient care (see Annex 15). 

Wealth inequality remains at a high level. 
A  rebalancing  of  the  tax  mix,  increasing 
wealth-related  taxes,  could  ease  pressure  on 
labour.  In  2025,  the  wealth  Gini  coefficient 
was 0.76, one of the highest levels in the euro 
area, with the top 10% of households holding 
nearly  60%  of  total  net  wealth,  and  the  top 
5% alone holding 46%. Wealth inequality also 
has  a  strong  regional  dimension(48).  Fiscal 
revenues  from  property  and  wealth  taxation 
remain  comparatively  low,  contributing  to  the 
persistence  of  wealth  concentration,  and 
weighing  on  social  mobility.  For  younger 
generations,  parental  income  and  background 
increasingly  shape  educational  and  labour 
market outcomes. Rising wealth inequality and 
declining  social  mobility  risk  undermining 
social  cohesion  and  equality  of  opportunity  in 
the longer term (49).  

(44)  Paritätischer Wohlfahrtsverband, 2025, Armutsbericht,  

der-paritaetische.de. 

(45)  GESIS, 2020, Wealth stratification in the early school 

career in Germany, blog.gesis.org. 

(46)  Initiative  für  einen  Handlungsfähigen  Staat,  2025, 

ghst.de. 

(48)  According  to  data  of  the  HFCS  study  from  2021,  on 
average, households in eastern Germany have assets of 
EUR 150 900, compared with EUR 359 800 in the west.  

(47)  BMAS,  2026,  Empfehlungen  der  Kommission  zur 

(49)  ifo,  2025,  Rising  Inequality,  Declining  Mobility:  The 

Sozialstaatsreform, bmas.de. 

Evolution of Intergenerational Mobility, ifo.de. 

25 

 
 
 
KEY FINDINGS 

In  areas  covered  by  existing  country-specific 
recommendations,  Germany  would  benefit 
from:  

strengthening  the  role  of  institutional 
investors as capital providers;  

by 

strengthening 

•  enhancing  the  quality  of  public 
the 
finances 
additionality and productivity of public 
addressing 
further 
investment, 
bottlenecks 
and 
in 
limiting 
execution  procedures,  and 
subsidies and transfers to the pension 
system; 

permitting 

• 

• 

• 

improving  the  sustainability  of 
statutory  pensions  and  enhancing 
future 
by 
reforming  the  pension  system  and 
strengthening 
and 
voluntary pension schemes; 

occupational 

adequacy 

pension 

improving  the  tax  mix,  notably  by 
reducing  the  labour  tax  wedge  and 
improving 
the  effectiveness  and 
efficiency  of  the  welfare  system  to 
strengthen  incentives  for  increasing 
hours  worked,  including  for  second 
earners;  

increasing  housing  supply  and 
affordability  by  further  simplifying 
rules  and  procedures,  mobilising 
reviewing 
additional  building 
rental  law  and  strengthening  social 
housing;  

land, 

•  boosting 

innovation  by 

further 
improving  the  commercialisation  of 
research  and  funding  for  disruptive 
innovation, 
high-
performing clusters and fostering R&D 
ecosystems 
where 
regions 
performance has stagnated;  

strengthening 

in 

•  supporting  growth  financing  for 
start-ups and scale-ups, notably by 
expanding  venture  capital  access  and 

26 

•  enhancing  competitiveness  and 
private  investment  by  simplifying 
lean 
regulations 
administrative procedures;  

creating 

and 

•  strengthening the single market by 
reducing national and regional barriers 
to the free flow of goods and services 
registration  of 
the 
as  well  as 
avoiding 
also 
businesses, 
burdensome  national  implementation 
of EU legislation; 

by 

•  strengthening  economic  security, 
also  by  supporting  the  diversification 
of trade and investment ties, including 
to 
essential 
access 
resources,  supply  chains,  markets  and 
technologies  and  by  supporting  the 
domestic 
raw 
materials; 

supply  of 

critical 

secure 

to 

•  accelerating 

by 

digitalisation 

the  modernisation 
public 
of 
and 
administration 
reducing 
governance  complexity  through  the 
expansion  of  common  digital  building 
blocks  and  data  register  connectivity 
levels  of  government,  by 
across 
simplifying  internal  workflows  and  by 
providing  more  user-friendly  digital 
services;  

•  speeding 

up 

the 

digital 
infrastructure roll-out of very high-
capacity  networks,  especially  fibre 
optics; 

•  accelerating 

expansion  of 

the  modernisation 
and 
electricity 
including 
infrastructure, 
transmission  and  distribution  grids  as 
well  as  storage,  while  improving  grid 

 
 
• 

digitalisation,  coordination  of  system 
operators  and  the  roll-out  of  smart 
meters;  

reducing  structural  reliance  on 
fossil  fuels  in  the  energy  system 
as  well  as  energy  prices,  including 
by accelerating renewable deployment, 
ensuring the elimination of bottlenecks 
for  electricity  flows  between  regions 
and  taking  measures  to  alleviate  the 
regional  mismatch  of  supply  and 
demand-side 
demand, 
flexibility,  and  increasing  cross-border 
transmission capacity to help preserve 
system stability; 

enabling 

•  accelerating  decarbonisation  of 
the 
transport,  buildings  and 
industry  sectors,  including  through 
improvements 
infrastructure 
in  rail 
and digitalisation, the effective roll-out 
of  building  renovations  particularly  in 
the western and northern regions, and 
industrial 
the  expansion  of  clean 
infrastructure  and  permitting 
for 
hybrid renewable systems especially in 
and 
high 
sectors  with 
emissions intensity; 

energy 

•  supporting 

labour 

market 
adjustment  and  improving  growth 
prospects by boosting participation of 
women, low-income earners and older 
workers,  expanding  early  childhood 
education  and  care  and  all-day 
schools, as well as cost-efficient long-
term  care,  facilitating  transitions  on 
labour  market  through  active 
the 
labour  market  policies,  and  attracting 
talent from third countries; and 

•  promoting 

human 

capital 
development  through  better  access 
to  adult  learning,  improving  basic  and 
digital  skills  and  education  outcomes, 
leaving, 
and  reducing  early  school 
especially  by  disadvantaged  groups, 
including by integrating preventive and 
remedial  measures  and  attracting 
qualified teaching staff.  

27 

 
ANNEXES 

 
 
 
 
LIST OF ANNEXES 

A1.  CSR implementation 

Fiscal 

A2.  Fiscal developments and debt sustainability 

A3.  Taxation 

Productivity 

A4. 

Innovation to business 

A5.  Single market and industry 

A6.  Savings, investment and access to finance 

A7.  Effective institutional framework 

Sustainability 

A8. 

Industry decarbonisation, circularity and climate mitigation 

A9.  Affordable energy transition 

A10.  Climate adaptation, preparedness and environment 

Fairness 

A11.  Labour market 

A12.  Social policies 

A13.  Education and skills 

A14.  Social scoreboard 

A15.  Health and health systems 

A16.  Housing 

Horizontal 

A17.  Sustainable development goals 

A18.  Competitive regions 

A19.  Transport 

LIST OF TABLES 

A1.1. 
A2.1. 
A2.2. 
A2.3. 
A2.4. 
A3.1. 

CSR implementation and Commission assessment 
Projected change in ageing-related expenditure in 2025-2040 and 2025-2070 
Supplementary pension schemes - scope for expansion 
Fiscal Governance Database indicators and Public Accounting Maturity 
Reforms and investments underpinning the extension of the adjustment period of Germany 
Taxation indicators 

31 

33 

39 

39 

44 

48 

48 

55 

63 

71 

77 

77 

86 

92 

101 

101 

106 

110 

115 

116 

120 

126 

126 

128 

135 

33 
41 
41 
42 
43 
45 

 
 
 
Key innovation indicators 
Single Market and Industry 
Savings and Investment Union summary diagnostics 
Financial Sector Indicators 
Germany. Selected indicators on better regulation practices 
Digital Decade key performance indicators: availability of digital public services 
Key clean industry and climate mitigation indicators: Germany 

A4.1. 
A5.1. 
A6.1. 
A6.2. 
A7.1. 
A7.2. 
A8.1. 
A10.1.  Key Adaptation Indicators 
A14.1.  Social Scoreboard for Germany 
A15.1.  Key health indicators 
A16.1.  Housing affordability selected indicators 
A18.1.  Main development trends, challenges and the concentration of resources 
A18.2.  Key regional indicators (at NUTS 1 level) for Germany 
A19.1.  ERTMS deployment in Germany. 

LIST OF GRAPHS 

Composition of non-financial corporations' funding 
Capital markets and financial intermediaries 
Composition of households' financial assets 
Trust in justice, regional / local authorities and in government 

Contributions to the change in the general government balance (% of GDP) 
Public investment evolution and composition (% of GDP) 
Primary spending evolution and composition 
Tax revenue by economic function in 2024, %, DE (outer ring) and EU-27 (inner ring) 
Tax wedge for single and second earners as a % of total labour costs, 2025 
Business formation rates in Germany by sector (2010-2024) 

A2.1. 
A2.2. 
A2.3. 
A3.1. 
A3.2. 
A4.1. 
A5.1.  Manufacturing industry production: total and selected sector, index (2021=100), 2015-2024 
A6.1. 
A6.2. 
A6.3. 
A7.1. 
A7.2.  Most time-consuming aspects of service delivery 
A8.1. 
A9.1. 
A9.2. 
A9.3. 
A11.1.  Key labour market indicators 
A12.1.  At-risk-of-poverty rate and its components 
A13.1.  Early leavers from education and training, of those aged 18-24 
A15.1.  Life expectancy at birth, years 
A15.2.  Treatable mortality 
A16.1.  House supply indicators in DE since 2005 
A16.2.  Price level for residential construction, % compared to the EU average 
A16.3.  House prices, rents and price-to-income evolution in DE and EU27 since 2005 
A17.1.  Progress towards the SDGs in Germany 

Greenhouse gas emissions in the effort sharing sectors, 2005, 2023, and 2024 
Electricity and gas prices for household and non-household consumers, first half of 2025 
Low-carbon electricity generation vs. electricity wholesale prices, 2025 
Germany’s installed renewable capacity vs electricity generation mix 

LIST OF MAPS 

A18.1.  GDP per head compared with the EU average. 
A18.2.  Automotive sector: share in total employment in industry, 2023 (%) 
A18.3.  Housing cost overburden (% of population), 2024 
A19.1.  TEN-T Cross-Border & National Priority Sections in Germany. 

32 

54 
62 
63 
70 
72 
73 
85 
100 
115 
117 
125 
129 
132 
136 

39 
40 
40 
44 
44 
52 
61 
64 
64 
66 
71 
73 
80 
87 
87 
89 
101 
106 
110 
116 
116 
120 
121 
122 
126 

127 
129 
132 
136 

 
 
 
 
 
 
ANNEX 1: CSR IMPLEMENTATION  

Table A1.1:  CSR implementation and Commission assessment 

(Continued on the next page) 

33 

Germany faces challenges in a wide range of policy areas, as identified in the country-specific recommendations (CSRs). Germany was recommended, among other things, to strengthen public investment, improve the quality of public finances, safeguard the long-term sustainability of the pension system, improve the tax mix, boost innovation, speed up the digitalisation of the public administration, improve the conditions for housing investment, reduce the dependency on fossil fuels, focus investment on efficient energy systems and decarbonisation of buildings and transport, increase the labour supply and improve education outcomes.  The Commission has assessed the degree of implementation of the 2025 CSRs considering the policy action taken by Germany to date*. To do so, the Commission has taken into account the information provided by Germany in its Annual Progress Report as well as other information sources. This annex provides summary information on the policy actions taken or planned by Germany for each CSR. More detailed information on these actions is included in the relevant chapters and other annexes of the report. *CSR 2 is not assessed in CeSaR. RRP implementation is monitored through the assessment of RRP payment requests and analysis of the bi-annual reporting on the achievement of the milestones and targets, to be reflected in the country reports. Progress with the cohesion policy is monitored in the context of the Cohesion Policy of the European Union. Recommendation text Main measures adopted or implemented  By 30 April 2026  Preparatory steps / credibly announced measures By 30 April 2026 Assessment of progress 1.1 Reinforce overall defence and security spending and readiness while ensuring debt sustainability in line with the European Council conclusions of 6 March 2025. Total general government defence expenditure in 2026 is projected at 1.9% of GDP, corresponding to an increase of 0.5 ppt. compared to 2024. Total general government defence expenditure in 2027 is projected at 2.2% of GDP, corresponding to an increase of 0.8 ppt. compared to 2024. Substantial progress 1.2 Submit the medium-term fiscal-structural plan by end-July 2025, as planned. The MTFSP has been submitted on 19 August 2025 and adopted by the Council on 10 October 2025. Full implementation 1.3 In line with the requirements of the reformed Stability and Growth Pact, limit the growth in net expenditure in 2025 and 2026 to a rate consistent with putting the general government debt on a plausibly downward trajectory over the medium term and maintaining the general government deficit below the 3% of GDP Treaty reference value, while making use of the allowance under the national escape clause for higher defence expenditure. - Cumulated deviation in 2025 amounted to -0.3% of GDP. - Cumulated deviation in 2026 projected at 0.3% of GDP but it is fully explained by the NEC flexibility (0.8 pps. of GDP).  Full implementation 1.4 Strengthen public investment by tackling the bottlenecks in planning and execution at all levels of government.  - Set up of the Special Fund for Infrastructure and Climate Neutrality worth EUR 500 bn, including for additional investment - Accelerated planning and procurement for the German Armed Forces - Simplification of Renewable Energy Permits - Future Infrastructure Act (parliamentary process has begun): seeking to prioritise, simplify and digitalise rail, motorway and waterway projects - Procurement Acceleration Act (parliamentary process has begun), with the aim to improve permitting and planning procedures Some progress  
 
 
 
          
 
Table (continued) 

(Continued on the next page) 

34 

Recommendation text Main measures adopted or implemented  By 30 April 2026  Preparatory steps / credibly announced measures By 30 April 2026 Assessment of progress 1.5 Improve the quality of public finances by containing transfers from the federal budget to the pension system and reviewing the efficiency of public spending.  - Federal government spending review in Summer 2025 - 2025 subsidy report, identifying trends and inefficiencies in federal subsidy expenditure, albeit without concrete follow-up - Implementation of performance budgeting recommendations (from the conceptual framework report produced by the government) - The government-appointed welfare state commission presented 26 suggestions on how to improve the efficiency of the welfare system.  - The cabinet adopted a law to balance the contributions to statutory health insurance funds which would contribute to sustainability in the short-term once adopted  Limited progress 1.6 Safeguard the long-term sustainability of the pension system, while maintaining pension adequacy, including by promoting longer working lives and reducing the incentives for early retirement.  - Pension package, including the extension of a guarantee that the pension level will not go below 48% of the average person’s wage until 2031 (Haltelinie) - Mothers’ Pension: increase of pensions accredited for parenting These measures put additional pressure on the sustainability of the pension system. - The Second Act Strengthening Company Pensions can improve earnings from occupational pensions and thus contribute to pension adequacy, yet coverage extends only to around half of employees.  - The reform of individual capital-based pensions (Altersvorsorgedepot) may help strengthen 3rd pillar pensions. - The early start pension (Frühstartrente) creates private savings accounts for children and teenagers, making capital market-based savings more attractive. - The government has established a pension committee, to propose further pension reforms (expected June 2026).  Limited progress 1.7 Improve the tax mix to support inclusive growth and sustainable competitiveness, also by reducing disincentives to increase hours worked, in particular for second earners.  - “Investment booster” (accelerated depreciation until end-2027), extended R&D tax credit, and others (Investitionssofortprogramm) - Active pension (Aktivrente): EUR 2,000/month tax-free income for employees above retirement age - Further measures go against an improvement of the tax mix (VAT rate reductions for restaurants, increased environmentally harmful subsidies)  Gradually reducing the corporate tax rate by 1 pp per year 2028-2032 (as part of Investitionssofortprogramm) Limited progress  
 
 
          
 
Table (continued) 

(Continued on the next page) 

35 

Recommendation text Main measures adopted or implemented  By 30 April 2026  Preparatory steps / credibly announced measures By 30 April 2026 Assessment of progress 3.1 Boost innovation by facilitating research commercialisation and by increasing public funding for transformative innovation.  - Introduction and subsequent expansion of the research allowance worth around EUR 1 bn - New initiative to strengthen spin-offs in selected hubs (“Start-up Factories”) - About one-quarter of the investment of the RRP supports research and innovation-related measures - High Tech Agenda aims to boost investment in research and innovation for six key technologies (funding of up to EUR 18 bn) but unclear to what extent the budget is truly additional and if it will be used for disruptive innovation  - Important Project of Common European Interest on artificial intelligence to develop foundational technologies and sector-specific models for industrial AI application Some progress 3.2 Facilitate the diversification of the economy, business dynamism and boost private investment by supporting entrepreneurship, improving access to finance for start-ups and scale-ups, simplifying regulation, and reducing administrative burden.  - Capital Growth Fund II: public support for venture capital with limited scale and market coverage  - Creation of Deutschlandfonds: EUR 30 bn in guarantees to leverage EUR 130 bn in total investments (uptake unclear) - Location Promotion Act aims to improve conditions for private investment into venture capital, infrastructure, and renewables (impact unclear) - Modernisation agenda aims to reduce administrative costs for businesses by 25% (EUR 16 bn), to cut compliance burden by EUR 10 bn, reduction of federal staff by 8% and the number of federal agencies as well as a cut in operating expenditure by 10% Limited progress 3.3 Speed up the digitalisation of the public administration, including by improving the geographic coverage of digital public services and facilitating cooperation between governmental levels.  - RRP 6.1.2 – Amended OZG (Online Access Act) implementation since 2024. However, many online services are only available in some Kommunen or Länder. - RRP 6.2.1 - Joint programme of the federal government and the Länder for an efficient administration that benefits citizens and businesses - RRP 2.1.1 - datalabs and chief data scientists in ministries since 2021  - Ordnance on the Standards for Online Access to Public Services to Strengthen Government Digitalisation (OZSV) - RRP 6.1.3 - National Once-Only Technical System (NOOTS) to link registers and online services - Roll-out of Deutschlandstack, a digital platform for public administration across all levels of government - Online legal proceedings More limited in scope: - Nationwide digital services announced (e.g. centralisation of car registration to achieve nationwide coverage; 24h company founding) - Digital platform to accelerate planning and approval procedures  - Building Information Modelling for construction  Limited progress 3.4 Accelerate the roll-out of very high-capacity digital communication networks, also involving the private sector.  - Telecommunications Law amendment accelerates the expansion of fibre optic and mobile communications networks by creating an ‘overriding public interest’   - Gigabitförderung 2.0 subsidy for network expansion  - Federal-regional agreements to speed up permitting in 2023. Implementation depends on Länder - Further amendment to Telecommunications Law (draft bill published in March)  - BnetzA copper-to-fibre migration strategy Some progress  
 
 
          
 
Table (continued) 

(Continued on the next page) 

36 

Recommendation text Main measures adopted or implemented  By 30 April 2026  Preparatory steps / credibly announced measures By 30 April 2026 Assessment of progress 3.5 Improve the conditions for housing investments by simplifying regulation and procedures, reviewing rental law and mobilising additional building land, with the concurrent aim of tackling the housing affordability challenges.  - “Construction turbo” (effective since October 2025) helps to mobilise additional building land and speeds up processes but is subject to approval by each municipality - Rent price brake has been prolonged until 2029 supporting affordability but with possible implications for investment incentives in the rental market - Concept paper for a “housing type E” allowing for a simpler, needs-based standard in construction; announced for 2026 - A law to limit the increase of indexed rents was announced - Fundamental reform of the Federal Building Code to accelerate construction is foreseen Limited progress 4.1 Further reduce the overall degree of dependency on fossil fuels and facilitate the expansion of renewable energy. - Adoption and update of several legislative packages incl. Hydrogen Acceleration Act, Carbon Dioxide Storage Act (KSpG) and Geothermal Energy Acceleration Act - Continued expansion of renewable energy capacity with installed renewable capacity reaching 200 GW, including 150.6 GW of solar (+16.5% compared to 2024), 68.1 GW of onshore wind (+4 GW) and 9.5 GW of offshore wind (+0.3 GW) - Kraftwerkstrategie / Capacity Market: Tender of 12 GW of controllable power capacity, of which 10 GW for gas. While this increases reliance on gas for electricity generation, it is meant to facilitate the phase-out of coal Some progress 4.2 Focus investment on efficient and integrated energy systems, including by upgrading the electricity network, ensuring cost-efficient expansion and flexibility to support the integration of renewable energy and to adapt to fluctuating demand and supply to meet increased balancing needs. - German state bought 25% stake in TenneT Germany (TSO) - Implementation of RED III  - EUR 36.6 bn for investments under Climate and Transformation Fund (but partly used for temporary relief measures such as subsidising industrial electricity prices) - 2,000 km of new transmission grids, 1280 km of them newly built, were approved on the federal level in 2025, an increase of 45% compared to 2024 - 14.7 bn planned investments in distribution grid in 2025 - AGNES Reform (BNetzA, paper Nov 2025, 5-year implementation) - NEST: Network Regulation Overhaul (BNetzA) Some progress 4.3 Accelerate the process of decarbonising the buildings - RRP measures supported at least 145,000 specific renovations related to, inter alia, systems technology (without heating), solar collectors, biomass heating systems and others, and the complete renovation of of  10,000 housing units (1.3.3).  - Funding programmes (BEG, KfW) continued but outlook uncertain  - Buildings energy act to be replaced by Buildings modernisation act (Gebäudemodernisierungsgesetz): plans to abolish previously legislated requirements for switching to climate-friendly heating solutions, allowing the continued installation of gas and oil boilers in residential buildings.  - Energy Performance of Buildings Directive transposition expected Some progress  
 
 
          
 
Table (continued) 

(Continued on the next page) 

37 

Recommendation text Main measures adopted or implemented  By 30 April 2026  Preparatory steps / credibly announced measures By 30 April 2026 Assessment of progress 4.4 and transport sectors, including by renovating the rail network. - RRP measures included the support for publicly accessible recharging points (1.2.1), support for the purchase of 339,450 electric vehicles (1.2.3), projects for hydrogen and fuel cell applications in transport (1.2.7), and registration of 670 zero-emission commercial vehicles (REPowerEu).  - Tax incentives for EVs - Rail infrastructure investments of EUR 23.1 bn in 2025, including EUR 18.1 bn in federal investment  - Special Fund for Infrastructure and Climate Neutrality: EUR 16 bn planned for rail maintenance and replacement Some progress 5.1 Increase labour supply and tackle the shortage of skilled workers, notably by increasing hours worked,  - Active pension (Aktivrente): allows people who have reached the statutory retirement age to voluntarily continue working and benefit from up to EUR 2,000/month tax-free, however with a limited impact,  - Citizen benefit act reform to create a “basic security” model to increase incentives for jobseekers’ integration into employment - The ban on consecutive uses of fixed term contracts (Anschlussverbot) was abolished for people having reached the statutory retirement age - Making overtime, hours worked beyond regular or collectively agreed full time hours tax-free (which may lead to some distortions) Limited progress 5.2 strengthening basic, green and digital skills and - Adult education and integration measures provided by the Federal Employment Agencies include basic skills as well as digital skills within labour-market and integration programmes - DigitalPakt II implementation started in January 2026, continuing federal support for school digitalisation - Further develop the National Skills Strategy, shaped by two main priorities: 1. supporting employees and companies in continuing education during structural change, and 2. using digitalisation and AI for continuing education Limited progress 5.3 better attracting and retaining talent from non-EU countries. - Expansion of the Integration through Qualification (IQ) funding programme: “Regional integration networks to promote a culture of welcome and recognition for international workers” - Work-and-stay agency to simplify working immigration procedures: guidelines adopted November 2025, set up of the agency by 2029 - Reducing the work-ban period for asylum seekers in reception facilities  Limited progress  
 
 
          
 
Table (continued) 

Source: Germany’s reporting and Commission assessment 

38 

Recommendation text Main measures adopted or implemented  By 30 April 2026  Preparatory steps / credibly announced measures By 30 April 2026 Assessment of progress 5.4 Improve education outcomes, including by promoting excellence and providing targeted support to disadvantaged groups. - ‘Leistung macht Schule (LemaS)’, the nation-wide rollout of evidence-based strategies for high-performing students  - Support to disadvantaged groups: Start Opportunities Programme: 10-year federal–Länder programme that concentrates EUR 2 bn yearly on 4,000 disadvantaged schools (10% of all schools)  Limited progress 5.5 Improve the availability and quality of early childhood education and care and whole-day schools to encourage carers, often women, to work and to promote equal opportunities for all children.  - RRP 4.1.1 – Investment Programme for Childcare Facilities: EUR 3.8 bn for the expansion of childcare places (2026–2029). - Law establishing a legal entitlement to all-day care: gradual phase-in 2026-2030, combined with EUR 3.5 bn to Länder for infrastructure investments - Early childhood education and care (ECEC): the 2025 coalition agreement reconfirms federal commitment to high-quality, accessible ECEC, but strong reliance on Länder implementation choices and availability of qualified staff - All-day schools: the 2025 coalition agreement commits to the legal entitlement to all-day primary schooling, but scope of entitlement (daily duration, holidays, inclusion standards) yet to be decided; requires Bund-Länder agreement on standards and delivery models Limited progress   
 
        
 
FISCAL 
ANNEX 2: FISCAL DEVELOPMENTS AND DEBT SUSTAINABILITY 

expenditure  on  defence,  infrastructure,  and  tax-
relief measures. 

Graph A2.1: Contributions to the change in the 
general government balance (% of GDP) 

Source: European Commission Spring 2026 Forecast 

Rising  public  investment  is  improving  the 
quality  of  expenditure  in  Germany.  Public 
investment  is  set to  increase  in  the  coming  years 
(CSR  2025  1.4),  driven  by  the  Special  Fund  for 
Infrastructure  and  Climate  Neutrality,  with 
spending forecast to rise as a share of GDP from 
3.3%  in  2025  to  3.7%  in  2027  (Graph  A2.2), 
focusing  mainly  on  transport  and  digitalisation  to 
boost  productivity.  However,  not  all  spending 
directly supports infrastructure or climate goals, as 
some  funds  are  set  to  be  used  for  subsidies  or 
reallocated  from  the  core  budget,  reducing  true 
additional  investment.  At  the  same  time,  overall 
government  expenditure  has  grown  significantly 
since  2020,  largely  due  to  rising  spending  on 
social  benefits,  alongside  increased  subsidies  for 
the  green  transition,  particularly  in  the  energy 
efficiency  of  dwellings.  This  trend  raises  concerns 
about  spending  efficiency  (CSR  2025  1.5)  and 
whether  alternative  approaches  –  by  prioritising 
social spending (CSR 2025 1.6) and higher carbon 
taxes  -  could  achieve  similar  goals  more 
effectively.  

in 

strategy 

developments 

This annex discusses selected topics in public 
finance  and 
fiscal-
structural  country-specific  recommendations 
(CSRs)  addressed  to  Germany  in  July  2025. 
These  CSRs  include  a  call  to  strengthen  defence 
spending  and  readiness  while  implementing  a 
the  Council 
fiscal 
Recommendation  of  10 October  2025.  Germany 
also  received  recommendations  in  2025  to:  (i) 
strengthen  public  investment;  (ii)  improve  the 
its  public  finances  by  containing 
quality  of 
transfers  from  the  federal  budget  to  the  pension 
(iii)  review  the  efficiency  of  public 
system; 
spending;  and 
long-term 
sustainability of the pension system. 

(iv)  safeguard 

line  with 

the 

in 

Union 

adopted 

endorsing 

On  10  October  2025,  the  Council  of  the 
European 
the 
Germany’s 
Recommendation 
medium-term  fiscal-structural  plan.  The  plan 
includes  a  fiscal  adjustment  over  seven  years.  At 
the  same  time,  the  Council  also  activated  the 
national  escape  clause  for  Germany  to  facilitate 
its transition to higher levels  of defence spending 
(50)(51). 

Developments in the government 
balance, debt and public 
expenditure (52) 

Germany’s  government  deficit  amounted  to 
2.7%  of  GDP  and  the  government  debt-to-
GDP  ratio  was  63.5%  at  the  end  of  2025. 
Based  on  the  Commission  Spring  2026  Forecast, 
Germany’s  government  deficit  is  projected  to 
increase to 3.7% of GDP in 2026 and 4.1% of GDP 
in  2027.  The  increase  in  the  deficit  is  set  to  be 
driven  by  Germany’s  rising  general  government 

(50)  OJ OC, C/2025/5635, 

ELI:http://data.europa.eu/eli/C/2025/5635/oj.  

(51)  Compliance by Germany with the maximum growth rates of 
net expenditure recommended by the Council is assessed in 
COM(2026)200. 

(52)  Figures underpinning fiscal surveillance (net expenditure 
growth) are provided in the Fiscal Statistical Tables 
(SWD(2026)200) providing background data relevant for the 
assessment of the budgetary policies of the Member States. 

39 

-2-101232021202220232024202520262027ExpenditureRevenueChange in budget balance% of GDP 
 
 
 
           
 
 
Graph A2.2: Public investment evolution and 
composition (% of GDP) 

amounted to 39.7%, slightly above the EU average 
of  39.5%.  Total  tax  revenues  are  projected  to 
increase to 41.1% of GDP in 2026 and 2027 and 7 
according to the Spring 2026 Forecast (54). The tax 
mix  in  Germany  relies  heavily  on  labour  taxation 
(CSR  2025  1.7),  which  is  high  at  all  wage  levels, 
while 
less 
detrimental  to  growth  such  as  recurrent  property 
or  environmental 
(see 
Annex 3). 

taxes  are  underused 

that  are  considered 

types 

tax 

Source: European Commission Spring 2026 Forecast 

Graph A2.3: Primary spending evolution and 
composition 

The  type  of  expenditure  that  has  a  greater 
impact on GDP increased from 2007. Zooming 
in  on 
the  composition  of  spending,  social 
protection  accounts  for  the  largest  share  of  total 
(above 40%), followed  by  health, 
expenditure 
general  public services  and  economic  affairs(53), 
representing more  than  10%  of  total  spending. 
(Since 2019, transport) has increased strongly (see 
Graph  A2.3).  Spending  on  general  public  services, 
housing,  interest,  other  economic  affairs  and 
defence  has  risen  more  moderately,  with  the  rise 
in  defence  spending  reflecting  recent  security 
developments. 
on 
communication  (including  IT  &  digitalisation)  has 
remained  broadly  stable  since  2019,  while 
spending  on  education  R&D  and  healthcare  has 
declined.  This  trend  deserves  attention,  as  these 
categories  are  generally  considered  growth-
friendly  spending  categories. 
In  the  case  of 
education,  this  decline  is  particularly  concerning 
given  the  drop  in  Germany’s  performance  in  this 
area (see Annex 13 for further details).  

spending 

contrast, 

By 

Tax  revenues  in  Germany  as  a  share  of  GDP 
are close to the EU average and the country 
relies  heavily  on  labour  taxes,  while  more 
growth-friendly taxes are underused. In 2024 
Germany’s  total  tax  revenues  as  a  percentage  of 
GDP  (including  compulsory  social  contributions) 

(53)  This  refers  to  the  set of  government  activities,  policies,  and 
expenditures aimed at regulating, supporting, and developing 
economic  activity  across  major  sectors,  including  general 
economic  and 
labour  policies,  agriculture  and  natural 
resources, energy, industry, construction, and other economic 
functions  not  elsewhere  classified.  Although  transport  and 
communication,  as  well  as  research  and  development 
activities, are normally considered part of this function, they 
are treated separately in the graph presented. 

Based on the economic literature, the categories considered to 
have a greater growth impact include education, R&D, health, 
transport and communication (See Bartiero and Coumede 
(2013), Gemmel et al. (2016), Lupu et al. (2018) Cepparulo 
and Mourre (2020) and OECD (2025)). 
Source: Based on the Classification of the Function of 
Government (COFOG data). 

(54)  Data  retrieved  from  the  AMECO  database  (https://economy-

finance.ec.europa.eu/economic-research-and-
databases/economic-databases/ameco-database_en).  

40 

-1135% of GDPDefenceRRF grants and other EU fundsOther nationally-financed1014182240444852200720082009201020112012201320142015201620172018201920202021202220232024a) Evolution (% of GDP)Primary expenditureSpending with higher impact on GDP (rhs)-1.0-0.50.00.51.0Social protectionHealthEducationPublic order/safetyEnvironmentR&DCommunicationCultureHousingOther economicInterest spendingGeneral servicesDefenceTransportb) Compositional change (% total spending) since 2019 
          
 
          
 
Table A2.1:  Projected change in ageing-related expenditure in 2025-2040 and 2025-2070 

Source: 2024 Ageing Report (EC/EPC). 

Table A2.2:  Supplementary pension schemes - scope for expansion 

Source: European Commission. 

The costs of ageing 

Total  ageing-related  spending  in  Germany  is 
projected  to  rise  by  about  1.5 pps  between 
now and 2040, to around 26% of GDP, with a 
further  0.5 pps  increase  between  2040  and 
2070  (Table  A1.12).  The  overall  increase  is  the 
result  of  a  projected  rise  in  pension,  long-term 
care and healthcare expenditure. These projections 
do  not  account  for  the  recent  pension  measures 
decided by the German government. 

Public pension spending as a share of GDP is 
increase  by  about  0.5 pps 
projected  to 
between now and 2040 and by about 1 pp. of 
GDP  between  2040  and  2070. 
In  2025, 
Germany  received  a  CSR  to  safeguard  the  fiscal 
sustainability  of  its  pension  system  (CSR  2025 
1.6),  including  by  promoting  longer  working  lives 
and  reducing  the  incentives  for  early  retirement. 
Since  then,  the  Mütterrente  (an  extra  pension  for 
eligible mothers) was increased and the  Haltelinie 
(a  minimum  pension  replacement  rate  of  48%  of 
full-time  salary  for  people  on  the  average  wage 
who have contributed to the public pension system 
for  45  years)  was  extended  again  to  2031.  Both 
elements  will  result  in  an  upward  revision  of 
projections  in  Table A2.1  –  all  else  being  equal  – 

and  thus  greater  transfers  from  the  federal 
budget to the pension system (CSR 2025 1.5). 

Supplementary  pension  schemes  can  make 
the  pension  system  more  resilient  by 
diversifying  retirement  income  sources.  In 
Germany, however, uptake of these supplementary 
schemes  remains  limited.  By  the  end  of  2024, 
private pension assets amounted to around 7% of 
GDP,  while  participation  covered  around  50%  of 
the working-age population (55). This coincides with 
rising  medium-term  public  pension  spending 
in  the 
pressures  and  a  projected  decrease 
replacement  rate  by  2.9 pps  between  2025  and 
2040 (Table A2.2 and A2.3) (56).  

Public healthcare expenditure is projected to 
be  7.7%  of  GDP  in  2025  (above  the  EU 
average of 6.6%) and is expected to increase 
by  0.2  pps  of  GDP  between  now  and  2040 
and  by  a  further  0.3  pps  between  2040  and 

(55)  Source:  OECD  Pension  Market  in  Focus  2025.  The  highest 
participation rate in at least one supplementary pension plan 
is reported. 

(56)  The  (gross)  replacement  rate  refers,  depending  on  data 
availability,  to  both  public  and  private  pensions.  It  is  based 
on projections from the 2024 Ageing Report. 

41 

DE24.40.60.20.30.21.425.8DEEU24.30.50.30.4-0.30.925.2EUDE24.40.90.50.40.21.926.4DEEU24.30.20.60.8-0.31.325.6EUAgeing-related expenditure Change in 2025-2040 (pps GDP) due to:Ageing-related expenditure PensionsHealthcareLong-term careEducationTotalAgeing-related expenditure Change in 2025-2070 (pps GDP) due to:Ageing-related expenditure PensionsHealthcareLong-term careEducationTotalAssets in 2024 (% GDP)Participation in 2024 (% working-age population)DE6.4-2.951.0DEEU32.4-2.855.9EUGross replacement rate at retirement: (pps change 2025-2040)  
 
 
 
           
 
 
          
 
Table A2.3:  Fiscal Governance Database indicators and Public Accounting Maturity 

(1) The Country Fiscal Rule Strength Index (C-FRSI) shows the strength of national fiscal rules aggregated at the country level 
based on: i) the legal base; ii) how binding the rule is; iii) monitoring bodies; iv) correction mechanisms; and v) resilience to shocks. 
The Medium-Term Budgetary Framework Index (MTBFI) shows the strength of the national MTBF based on: i) coverage of  targets/ 
ceilings included in national medium-term fiscal plans; ii) connectedness between these targets/ceilings and the annual budgets; 
iii) involvement of the national parliament in the preparation of the plans; iv) involvement of independent fiscal institutions in 
their preparation; and v) their level of detail. Higher scores are associated with higher rule and MTBF strength. The score for public 
accounting reflects the degree of maturity in relation to the International Public Sector Accounting Standards (IPSAS). Countries 
with an accounting maturity of 70% or more in relation to IPSAS are deemed to apply accrual accounting. For more information, 
see the report on public accounting in the EU (COM(2025)746 and accompanying Staff Working Document SWD(2025)396). 
Source: Fiscal Governance Database, European Commission 

2070 (57). Public expenditure on long-term care is 
projected  to  be  2.0%  of  GDP  in  2024  (above  the 
EU  average  of  1.7%)  and  is  expected  to  increase 
by 0.3 pps of GDP between 2024 and 2040 and by 
a further 0.1 pps of GDP between 2040 and 2070. 
Not included in these projections is the expenditure 
that  will  be  made  by  the  compulsory  private 
insurance  system 
in  Germany,  which  covers 
roughly 10% of the population. 

National fiscal framework 

The  German  independent  fiscal  institution 
(IFI),  the  Advisory  Board  to  the  Stability 
Council,  is  very  small  and  has  a  narrow 
mandate. Its technical staff is less than one full-
time  equivalent  and  its  mandate  has  so  far 
focused  on  monitoring  compliance  with  the  fiscal 
rule  focusing  on  the  structural  balance  of  the 
general  government  and  the  attached  Joint 
Forecast  Group  is  responsible  for  endorsing  the 
macroeconomic forecast. No public policy dialogue 
takes  place  between  the  German  IFI  and  the 
government,  and  the  IFI’s  media  presence  is 
relatively limited. Although the Board members are 
well  qualified  in  practice,  they  are  not  subject  to 
any formal professional competence requirements. 
The  Advisory  Board’s  access  to information is  not 
protected  in  law,  and  some  issues  have  been 
signalled in this area, for example with the format 

(57)  Key  performance  characteristics, 

reforms  and 
investments of the German healthcare system are discussed 
in Annex 15. 

recent 

and  timeliness  of  some  information  sent  by  the 
government  to  the  IFI.  The  Advisory  Board  has 
never  been  subject  to  an  independent,  external 
evaluation,  but  an  evaluation  is  planned  for  the 
near future. 

Spending reviews are an established practice 
in  Germany,  but  the  country  would  benefit 
from  further  institutionalisation  of  review 
processes.  The  federal  government  carries  out 
spending reviews roughly every two years, but this 
only  covers  selected  parts  of  the  federal  budget. 
There  is  a  commitment  in  the  national  medium-
term  fiscal-structural  plan  to  run  two  more 
spending  reviews  by  2029.  However,  there  is  no 
explicit  commitment  or  obligation  to  use  the 
recommendations  from  these  reviews  to  inform 
the budgeting process. 

can 

and 

also 

Accrual  accounting  improves  transparency 
over  a  public  body’s  financial  position  and 
performance 
support 
sustainability  and  intergenerational  equity. 
Most  (14)  Member  States  have  implemented 
accrual accounting across the general government 
sector and a further five are set to do so by 2030 
(58).  Germany  lags  behind  the  EU  average  in  this 
area  (see  Table  A2.3),  in  particular  at  the  federal 
and  state  levels  of  government.  The  country  has 
no  medium-term  plans  to  transition  towards 
accrual accounting (59).  

(58)  Report on public accounting in the EU (COM(2025)746 and 
accompanying Staff Working Document SWD(2025)396). 
Countries with an accounting maturity of 70% or more in 
relation to International Public Accounting Standards are 
deemed to apply accrual accounting. 

(59)  Annexes 3.1 and 3.4 of SWD(2025)396. 

42 

2024GermanyEU AverageCountry Fiscal Rule Strength Index (C-FRSI)14.3314.81Medium-Term Budgetary Framework Index (MTBFI)0.680.722025 Public accounting maturity of general government35%65% 
 
 
 
 
   
 
Germany  is  making  progress  on  the  reforms 
and  investments  from  the  MTP.  Germany’s 
Medium-term Plan (MTP) includes a set of reforms 
and investments underpinning the extension of the 
fiscal  adjustment  period. This  set  is  composed  of: 
(i)  15  additional  commitments  to  reforms  and 
investments  and  (ii)  two  commitments  from  the 

recovery  and  resilience  plan  (RRP).  Taking  into 
account  the  information  provided  in  the  Annual 
Progress 
the 
implementation  status  of  the  set  of  reforms  and 
investments  due  in  2025  and  the  first  half  of 
2026.   

Table  A2.4 

Report, 

shows 

Table A2.4:  Reforms and investments underpinning the extension of the adjustment period of Germany 

The progress of each backward-looking key step (i.e., those scheduled for completion by 30 April 2026) is classified as either 
‘completed’ or factual information is provided. The status of forward-looking key steps due after December 2026 do not appear in 
the table, as these will be assessed by the Commission in future Country Reports. * These key steps correspond to milestones 136 
and 137 of Germany’s RRP, which have been assessed as fulfilled as part of a payment request under the RRF. 
Source:  Annual Progress Report of Germany and Commission’s assessment. 

43 

Measures Key stepsRecommended implementation date COM assessment 2026Operationalisation of the Special Fund for Infrastructure and Climate NeutralityStep 1: By Q3 2025, adopt the laws for the creation of the Special Fund for Infrastructure and Climate Neutrality.Q3 2025CompletedResearch allowance to support R&DStep 1: By Q1 2026, adopt a law on the extension of the tax base and eligible expenditure for the research allowance.Q1 2026CompletedSimplification of procurement law for the Armed ForcesStep 1: By Q2 2026, simplify procurement laws for the Armed Forces by extending the scope for simplified procurement procedures, speeding up and digitalising procedures.Q2 2026CompletedSimplification of procurement lawStep 1: By Q2 2026, simplify procurement laws by extending the scope for simplified procurement procedures, speeding up and digitalising procedures.Q2 2026Adopted, entry into force 1 July 2026.Facilitating employment after reaching retirement ageStep 1: By Q2 2026, lift the ban on pre-employment to facilitate workers' temporary return to the labour market after reaching retirement age by changing the relevant legislation.Q2 2026CompletedExtension of the tobacco taxStep 1: By Q4 2026, adopt a law for an extension of the tobacco tax model.Q4 2026Planned, no draft law yet.Facilitating housing investment (Housing Turbo)Step 1: By Q1 2026, simplify the legislation for housing construction through temporary rule exemptions, more flexible planning, extended special regulations, and clearer noise conflict guidelines.Q1 2026CompletedSet up of a government-backed venture capital (VC) fundStep 1: By Q4 2026, start fundraising for the ‘Growth fund II’ targeted at institutional investors with the government as an anchor investor.Q4 2026CompletedReport on government subsidiesStep 1: By Q4 2025, publish a first federal subsidy report that analyses the impact of subsidised programmes following the subsidy policy guidelines. Q4 2025CompletedStep 1: By Q4 2025, publish a first spending review.Q4 2025CompletedImproving conditions for geothermal energy investmentsStep 1: By Q2 2026, simplify authorisation proceduresthrough a Geothermal Energy Acceleration Act.Q2 2026CompletedImproving conditions for hydrogen investmentsStep 1: By Q3 2026, simplify planning, permitting and related procurement procedures through a Hydrogen Acceleration Act.Q3 2026Completed Federal-Länder working group for an efficient public administration (RRP reform 6.2.1)Step 1: By Q2 2021, finish a first progress report with recommendationStep 2: By Q2 2022, finish a second progress reportStep 3: By Q1 2025, finalise at least 80 % of the measures from the 2nd progress report.RRPCompleted*Offshore Wind Energy Act (RRP reform 7.1.5) Step 1: By Q1 2023, reduce barriers to the development of renewable energies and the necessary grid infrastructure by simplifying the planning and permitting procedures for relevant projects.RRPCompleted*Spending reviews 
 
   
 
ANNEX 3: TAXATION 

This  annex  provides  an 
indicator-based 
overview of Germany’s tax system. It includes 
information  on  the  tax  mix,  on  competitiveness 
and fairness aspects of the tax system, and on tax 
collection and compliance. In the area of taxation, 
the  2025  country-specific  recommendations  for 
Germany  highlighted  challenges  in  the  tax  mix  to 
support 
sustainable 
growth 
competitiveness,  including  better  work  incentives 
for second earners. Further, the set of reforms and 
investments 
extended 
adjustment  period  for  Germany’s  medium-term 
fiscal-structural plan includes the extension of the 
research allowance (see below).  

underpinning 

inclusive 

and 

the 

Graph A3.1: Tax revenue by economic function in 
2024, %, DE (outer ring) and EU-27 (inner ring) 

Source: Taxation Trends Data, DG TAXUD 

Germany's  tax  revenue  structure  is  heavily 
biased towards labour taxes. In 2024, revenues 
from  labour  taxes (personal  income tax  (PIT),  and 
social  contributions)  reached  22.7%  of  GDP,  of 
which  social  contributions  alone  accounted  for 
about  16.2%  (Table  A3.1).  Consumption  taxes 
yielded  9.9 %  of  GDP,  mainly  from  VAT  (6.9 %), 
while taxes on capital contributed 7.0%. Recurrent 
property  taxes  accounted  for  just  0.4%  of  GDP, 
well  below  the  EU  average  of  0.9%,  signalling 
potential  to  raise  revenue  and  at  the  same  time 
support  municipal  finances.    Environmental  taxes 
amounted to 1.75% of GDP in 2024, compared to 
an EU average of 2.08% of GDP. The revenue mix 
thus  deviates  markedly  from  the  EU’s  policy 
objectives  of  shifting 
less 
distorting  taxes  on  property,  consumption  and 
environmental bases (Graph A3.1). 

taxation 

toward 

Graph A3.2: Tax wedge for single and second 
earners as a % of total labour costs, 2025 

Note: The second earner tax wedge shows a household’s tax 
wedge resulting from the wage that a second earner taking 
up a job at 67% of the average wage receives. It does not 
show the total tax wedge of the household. The household is 
assumed to have a first earner at 100% of the average wage 
and no children. For the methodology of the tax wedge for 
second earners, see OECD (2024), Taxing Wages 2024. 
Source: European Commission 

The labour tax burden is considerably higher 
and  less  progressive  than  the  EU  average. 
Graph  A3.2  shows  that  the  labour  tax  wedge (60) 
for  Germany  in  2025  was  much  higher  than  the 
EU  average,  not  only  for  single  people  at  the 
average wage level, but also for those earning low 
wages  (50%  and  67%  of  the  average  wage)  and 
high wages (167% of the average  wage). The tax 
wedge  for second earners at 67% of the average 
wage whose partners are at 100% of the average 
wage  was  considerably  above  the  EU  average.  In 
addition, the difference between the tax wedge for 
these second earners at 67% of the average wage 
and for single people at the same wage level was 
particularly high in Germany, which is indicative of 
the  significant  role  that  the  joint  taxation  system 
for  couples 
in 
reducing  work  incentives  for  second  earners.  The 
difference  between  the  tax  wedge  for  high-  and 
low-wage earners (i.e. those at 167% and 50% of 

(Ehegattensplitting)  still  plays 

(60)  The  tax  wedge  is  an  indicator  of  the  tax  burden  on  labour 
that  can  be  assessed  at  various  levels  of  earnings.  It  is 
defined as the sum of personal income taxes, employee and 
employer  social-security  contributions  and  other  mandatory 
contributions,  expressed  as  a  percentage  of  total  labour 
costs  (composed  of  the  net  wage,  personal  income  tax, 
social 
contributions,  and  other  mandatory 
contributions).  Tax  wedge  data  in  the  2026  country  reports 
are calculated by the Joint Research Centre of the European 
Commission and based on the EUROMOD model, while in the 
past country reports they were based on the Tax and Benefit 
model  of  the  OECD.  While  the  underlying  methodology  is 
very  similar,  differences  in  the  assumptions  can  lead  to 
different results between both models. 

security 

44 

51.526.821.657.325.117.6Taxes on labourTaxes on consumptionTaxes on capital39.442.746.649.852.2202530354045505550100150Tax wedge, % of total labour costsEarnings as % of the average wageSingle earner - DESingle earner - EU averageSecond earner -  DESecond earner -  EU average 
 
      
      
 
 
 
Table A3.1:  Taxation indicators 

(1) Forward-looking effective tax rate (KPMG).  
(2) A higher value indicates a stronger redistributive impact of taxation. 
(*) EU-27 simple average. 
(**) Forecast value for 2024. EU-27 refers to the median value. For more data on tax revenues as well as the methodology 
applied, see the Data on Taxation Trends webpage. 
Source: European Commission, OECD, ISORA. 

disincentives  to  work.  With  over  500  types  of 
benefits,  the  social  transfer  system  is  complex, 
reducing  rightful  take-up  while  high  transfer 
withdrawal  rates  generate  disincentives  to  work. 
Potential  improvements  were  recently  pinpointed 
by  the  Welfare  State  Commission  (see  Annex 12). 
A reduction in income tax particularly for low and 
medium 
the 
government’s  coalition  agreement  and  could 
flatten  the  steep  tax  progression  in  that  ‘middle 
class  bulge’  income  region  (Mittelstandsbauch). 
The  ‘active  pension’  (Aktivrente)  in  effect  as  of 
2026  allows  employees above  retirement  age  to 
earn up to EUR 2 000 per month tax-free, creating 
incentives to work longer. 

is  still  planned 

incomes 

in 

further 

Inheritance  and  gift  taxation  is  complex, 
regressive  and  shows 
revenue 
potential.  Although  Germany’s  wealth  inequality 
is  among  the  highest  in  the  euro  area  (see 
Annex 12),  a  complex  system  of  allowances  to 
inheritance  and  gift  taxation  currently  result  in 
higher  effective  tax  rates  for  low-  and  medium 
inheritances 
In 
for  high 
particular the transfer of business assets benefits 

inheritances. 

than 

the  average  wage  respectively)  is  considerably 
lower  for  Germany  than  for  the  EU  as  a  whole, 
indicating  the  low  progressivity  of  the  labour  tax 
system. 

The  tax  and  benefit  system  reduces  income 
inequality.  The  difference  in  the  Gini  coefficient 
before and after taxes and transfers is estimated 
at  around  10.9 percentage  points  (pps),  clearly 
above  the  EU  average  of  7.8 pps (61).  While  this 
indicates that the tax‑benefit system performs an 
important  redistribution  function,  its  progressivity 
limited  by  several  factors:  social‑security 
is 
contributions  are  capped  and  capital 
income 
benefits  from  separate,  often  lower  taxation  (at 
25%),  being  exempt 
security 
low‑income 
contributions.  The  tax  wedge  for 
earners  remains  well  above  the  EU  average,  and 
high  marginal  tax  rates  for  second  earners 
discourage full participation in the labour market.  

social 

from 

However,  the  system  is  complex  and  overall 
has  limited  progressivity,  partly  generating 

(61)  The  Gini  coefficient  measures  the  extent  to  which  the 
distribution  of  income  within  a  country  deviates  from  a 
perfectly  equal  distribution.  A  coefficient  of  0  expresses 
perfect equality where everyone has the same income, while 
a coefficient of 100 expresses full inequality where only one 
person has all the income. 

45 

2019202220232024202520192022202320242025Tax structureTotal taxes (including compulsory actual social contributions) (% of GDP)40.140.138.839.639.939.739.039.4Taxes on labour (% of GDP)22.522.221.822.720.620.119.920.3of which, social security contributions (SSC, % of GDP)15.515.415.516.213.012.712.713.0Taxes on consumption (% of GDP)10.710.59.89.911.210.910.510.6of which, value added taxes (VAT, % of GDP)6.97.36.96.97.17.47.17.1Taxes on capital (% of GDP)6.97.57.17.08.18.78.58.5Personal income taxes (PIT, % of GDP)9.69.58.99.29.69.49.39.6Corporate income taxes (CIT, % of GDP)2.63.13.02.92.63.23.23.1Total property taxes (% of GDP)1.11.21.00.92.22.11.91.8Recurrent taxes on immovable property (% of GDP)0.40.40.40.41.21.00.90.9Environmental taxes (% of GDP)2.41.81.71.752.62.12.12.08Effective carbon rate in EUR per tonne of CO2 equivalentsnana96.9nanana84.8naTax wedge at 50% of average wage (single person) (*)38.937.538.238.739.432.431.631.531.531.6Tax wedge at 100% of average wage (single person) (*)46.645.345.746.046.640.139.739.939.940.0Corporate income tax - effective average tax rates (1) (*)30.329.729.730.620.019.219.019.3Difference in Gini coefficient before and after taxes and cash social transfers (pensions excluded from social transfers) (2) (*)7.911.211.310.97.88.07.97.8Outstanding tax arrears: total year-end tax debt (including debt considered not collectable) / total revenue (in %) (*)1.02.73.1na31.832.630.7naVAT gap (% of VAT total tax liability, VTTL) (**)10.56.69.79.710.57.38.2naProgressivity & fairnessTax administration & complianceBy tax baseSome tax typesEU-27Germany 
 
 
   
 
special  exemptions 

from  substantial  tax  advantages (62).  A  lower 
overall  tax  rate,  a  broader  assessment  basis 
without 
combined  with 
generous  deferral  rules  for  non-liquid  business 
assets  and  allowances 
that  protect  smaller 
lower 
inheritances  could  reduce  bureaucracy, 
incentives  for  tax  avoidance,  and  lead  to  a  fairer 
distribution  of  the  tax  burden  (63).  Such  a  reform 
seems  possible  without  endangering  business 
continuity (64)  and  could  increase  fiscal  revenues 
from EUR 12 billion by about EUR 2-8 billion (65). A 
decision by the Federal Constitutional Court on the 
preferential treatment of inherited business assets 
currently in place is expected by the end of 2026.  

Reducing  environmentally  harmful  subsidies 
increase  tax  revenues.  While 
could  also 
Germany has introduced a national carbon price in 
2021,  other  environmental  taxes  generate  only 
modest  revenues  relative  to  peers.  This  is  also 
partly due to tax reliefs tackling high energy prices 
to  protect  the  economy  and  private  households. 
However,  the  generally  lower  taxation  of  diesel 
compared 
is 
petrol 
it 
environmentally  unjustified  and  eliminating 
could increase fiscal revenues by EUR 7 billion (66). 
As  of  2026,  environmentally  harmful  subsidies 
increased 
tax 
in  agriculture 
for  diesel  used 
expenditures 
(Agrardiesel)  and  for  the  commuter  allowance 
(Pendlerpauschale). 

further,  with  higher 

(Dieselprivileg) 

even 

to 

Taxation of real estate is relatively limited. A 
long‑overdue reform of the municipal property tax 
came  into  force  in  2025,  though  not  aimed  at 
increasing revenues. Generous tax expenditures for 
capital  income  from  selling  or  renting  existing 
buildings,  which 
allocation, 
distort 
contribute  to  rising  housing  prices  and  increase 
inequality.  Abolishing  these  or  better  targeting 

capital 

(62)  Malmendier, U., Schnitzer, M., Truger, A., & Werding, M., 2026, 
Reformbedarf bei der Erbschaft-und Schenkungsteuer in 
Deutschland. 

(63)  Fuest,  C.,  Peichl,  A.,  &  Windsteiger,  L.,  2026.  Zur Reform der 

Erbschaftsteuer. 

(64)  Dörrenberg, P., & Langenmayr, D. (2026). Betriebsvermögen 
in der Erbschaftsteuer: Was spricht für Ausnahmen–und was 
dagegen? 

(65)  Bach, S., & Sinclair, T., 2026. Erbschaftsteuerreform: 
Vergünstigungen abbauen, Freibeträge erhöhen, 
Steuertarifstufen reduzieren. DIW Wochenbericht 4/2026. 

(66)  Bundesrechnungshof, 2025, Maßnahmen zur Stärkung der 

Einnahmenbasis. 

them  to  incentivise  the  expansion  of  housing 
supply  could  raise  up  to  EUR 12 billion  per  year. 
Profits  of 
real  estate  companies  are  fully 
exempted  from  the  municipal-level  corporate 
income  tax  (Gewerbesteuer)  with  an  average  rate 
of  15%,  entailing  a  revenue  loss  of  around 
EUR 5 billion (67).   For  the  Länder,  the  property 
transfer  tax 
is  a  major 
(Grunderwerbsteuer) 
revenue source alongside inheritance and gift tax. 
However,  transfer  taxes  disincentivise  transfers 
and thus mobility. 

is 

taxation 

relatively  high. 
Company 
Germany’s  statutory  corporate  income  tax  (CIT) 
consists  of  a  15%  federal  CIT,  a  5.5%  solidarity 
surcharge and a municipal trade tax that varies by 
locality.  The  effective  average  CIT  rate  is  around 
29.7%, the highest in the EU, with the EU average 
at  12.7%.  Combined  with  complex  rules  and 
separate  state  and  federal  administration,  the 
significant 
corporate 
compliance costs and disincentives for investment. 

creates 

system 

tax 

have 

reform 

efforts 

(Investitionssofortprogramm) 

However, 
been 
undertaken to enhance investment incentives 
and  make  Germany  more  competitive  as  a 
tax  location  for  businesses.  To  improve  tax 
conditions  for  businesses,  in  July  2025  Germany 
adopted  an  act  for  an  immediate  tax  investment 
to 
programme 
strengthen  Germany  as  a  business 
location. 
Among  other  things,  this  act  reintroduces  a 
declining-balance  depreciation  for  movable  fixed 
assets of up to 30% for investments between July 
2025  and  end  of  2027.  It  also  provides  for  the 
first  reduction  of  the  corporate  tax  rate  since 
2008,  by  1 pp.  per  year between  2028  and  2032 
from  15%  to  10%,  as  well  as  an  improved 
preferential  tax  treatment  of  retained  profits  for 
limited  liability  partnerships,  which  are  subject  to 
income  tax.  In  addition,  the  R&D  tax  credit  was 
further extended, increasing incentives to invest in 
innovation. 

Municipal business tax remains a cornerstone 
of  local  revenue  in  Germany,  despite  large 
differences  at 
level.  German 
regional 
municipalities  rely  heavily  on  the  municipal-level 
business tax (Gewerbesteuer) which accounted for 
almost  half  of  their  tax  revenue  in  2024 (68).  In 

(67)  OECD Economic Surveys: Germany 2025. 

(68)  https://www.iwkoeln.de/studien/martin-beznoska-tobias-

hentze-bjoern-kauder-eine-reform-der-gewerbesteuer-fuer-

46 

 
 
 
 
order  to  limit  intermunicipal  tax  competition  and 
stabilise  revenues (69),  the  federal  government 
recently  raised  the  minimum  threshold  for  tax 
multipliers that municipalities can set (Hebesatz).  

Tax compliance is generally good in Germany, 
yet  gaps  remain.  The  VAT  compliance  gap  was 
9.7%  in  2023  and  2024,  corresponding  to  a  loss 
of EUR 32 billion in tax revenue in 2024 (70). From 
the potential VAT revenue, 11.7% was foregone in 
2024  because  of  national  tax  exemptions  and 
reduced rates. Exemptions increased further as of 
2026 with the reduction of the VAT for restaurants 
from  19%  to  7%  (71).  The  CIT  compliance  gap  is 
estimated  at  7.6%,  below  the  EU  average  of 
10.9%.  Enforcement  could  be  improved  to  move 
closer to Denmark, Netherlands and Finland where 
around 2% of the company tax revenue is missed, 
or  Austria  where  3.8%  is  missed (72).  In  addition, 
company tax revenue losses due to profit shifting 
are  among  the  highest  in  the  EU,  with  profits 
amounting  to  1.6%  of  GDP  shifted  abroad, 
resulting  in  the  loss  of  28%  of  corporate  tax 
collected (73).  Outstanding  tax  arrears  (including 
uncollectable debts) have increased to about 3.1% 
of tax revenue. Germany lacks an official estimate 
of  the  PIT  gap,  and  the  shadow  economy  is 
estimated  at  around  8.8%  of  GDP.  Offshore  tax 
through  undeclared  foreign  deposits 
evasion 
amounts to roughly 0.24% of GDP (74)(75). 

Digital 
tax 
administration is slow and fragmented. Unlike 

transformation 

the 

of 

tragfaehige-kommunalfinanzen.html Bundesministerium der 
Finanzen, 2025, Eckdaten zur Entwicklung und Struktur der 
Kommunalfinanzen 2015 bis 2024. 

(69)  Beznoska, M., Hentze, T., and Kauder, B., 2026, Eine Reform 
der Gewerbesteuer für tragfähige Kommunalfinanzen. IW-
Kurzbericht Nr. 18, 10 March 2026. 

(70)  European Commission, Syntesia, Poniatowski, G., Bonch-
Osmolovsky, M., Śmietanka, A. et al., 2025, VAT gap in 
Europe – Report 2025. 

(71)  Boysen-Hogrefe, J., 2025, Gastro-Mehrwertsteuer: Keine 
überzeugenden Gründe. Wirtschaftsdienst, 2025/6. 

(72)  European Commission, 2025, Corporate Income Tax Gap, 
Towards an European approach to measuring losses in 
corporate tax revenues, Final Report. 

(73)  Tørsløv, T., Wier, L., & Zucman, G., 2023, The missing profits 
of nations. The Review of Economic Studies, Volume 90, 
Issue 3.  

(74)  VAT Gap report 2025. 

the 

most EU Member States, Germany has no national 
taxation  strategy.  Responsibilities  are 
digital 
divided  between 
federal  and  Länder 
authorities  and  the  long‑running  ‘KONSENS’  IT 
project  has  suffered  delays  and  cost  overruns. 
Pre‑filled  electronic  returns  are  available  only  for 
PIT;  companies  must  still  fill  in  all  CIT  and  VAT 
fields  manually.  E‑filing  rates  for  PIT  (around 
79 %)  and  VAT  (around  95 %)  remain  below  the 
EU average. Artificial‑intelligence tools, such as the 
X‑PIDER risk‑scoring system and virtual assistants, 
are being used at federal level but are only slowly 
being  rolled  out  in  the  Länder.  The  Growth 
Opportunities 
introduced 
from 
mandatory  e‑invoicing  and  an  electronic  VAT 
reporting 
improve 
should 
platform,  which 
compliance and reduce the VAT gap (76). 

2024 

Act 

Germany’s  dividend‑arbitrage  scandal  shows 
how  tax  fraud  can  harm  public  finances.  In 
‘cum‑ex’  and  ‘cum‑cum’ transactions,  shares  were 
rapidly  traded  around the dividend record date so 
that  multiple  investors  could  claim  refunds  of 
withholding  tax  that  had  only  been  paid  once. 
Investigative reports estimate that these schemes 
siphoned  about  EUR 36 billion  from  the  German 
treasury  between  2000  and  2020 (77).  The 
government  told  the  parliament  in  2023  that 
roughly  EUR 3 billion  had  been  recovered  through 
final  court  judgments (78).  Germany  has  tightened 
its laws and will introduce a standardised reporting 
model under the EU’s FASTER directive in 2027 to 
prevent  similar  frauds.  Germany  will  receive 
technical  support 
to 
implement the FASTER directive.  

the  Commission 

from 

(76)  Mind the Gap  – Country Fiche Germany, Section 5 “Digital 

transformation of the tax administration”. 

(75)  Mind the Gap – Country Fiche Germany, Section 2: Monitoring 

(77)  CORRECTIV: The CumEx Files. 

of compliance gaps. 

(78)  https://dserver.bundestag.de/btd/21/005/2100548.pdf.  

47 

 
 
 
PRODUCTIVITY 
ANNEX 4: INNOVATION TO BUSINESS  

by 

facilitating 

Germany’s  traditionally  strong  performance 
in  research  and  innovation  (R&I)  is  under 
pressure.  Reforms  are  needed  to  implement  the 
2025  country-specific  recommendations  to  boost 
innovation 
research 
commercialisation and by increasing public funding 
for  transformative innovation  and  to facilitate  the 
diversification of the economy, business dynamism 
and  boost  private 
investment  by  supporting 
entrepreneurship,  improving  access  to  finance  for 
start-ups  and  scale-ups.  The  2025  European 
Innovation Scoreboard ranks Germany as a ‘strong 
innovator’,  with  a  performance  above  the  EU 
average  (111.1%)  yet  on  a  decreasing  trend (79) 
and  with  significant  regional  differences  (see 
Annex  18).  Germany’s  R&D  intensity (80)  exceeds 
the  EU  average  but  since  2018  has  stagnated, 
standing at around 3.1%, short of its own target of 
3.5% (81)  by  2030  and  behind  global  leaders  like 
Israel  (6.3%),  South  Korea  (4.96%),  the  US  and 
Japan 
R&I 
performance  would  benefit  from  the  timely 
implementation  of  the  measures  included  in  the 
new  government’s  coalition  agreement  and  the 
new  High-tech  Agenda (83).  Likewise,  it  would  be 
beneficial  to  ensure  that  R&I  funding  remains  a 
clear  priority  and  that  its  level,  effectiveness  and 
efficiency  are  continuously  strengthened.  Firms 
are  gradually  adopting  digital  technologies  in  line 
with  the  EU  average,  although  uptake  of  data 
analytics  has  stalled.  Expanding  digital  adoption 
could  make 
under-
representation 
sectors  and 
strengthen its long-term competitiveness. 

up 
in  high-growth 

for  Germany’s 

Germany’s 

3.4%) (82). 

(both 

Excellent science 

reform 

is  needed 

to  sustain 

Germany  has  a  strong  public  research  base, 
but 
its 
performance. Its science system is anchored in a 
well-established  network  of  public 
research 
institutions  and  backed  by  numerous  R&I  funding 
programmes (84).  Despite  this,  the 
impact  of 
Germany’s research – as indicated by the share of 
publications  among  the  world’s  top  10%  most 
cited  –  is  only  just  above  the  EU  average  (10.2% 
vs  9.4%  in  2022).  This  impact  has  been  slightly 
decreasing  over  time,  also  reflecting  broader 
global  shifts.  Despite  standing  above  the  EU 
average  (0.92%  of  GDP,  compared  with  an  EU 
average of 0.72% in 2024), public R&D investment 
has  broadly  stagnated  as  a  share  of  GDP,  which 
may limit its contribution to achieving the 3.5% of 
GDP  target  (85).  In  this  context,  it  would  be  highly 
the  planned 
beneficial 
EUR 18 billion  in  the  Hightech  Agenda  provides 
additional  funding  beyond  existing  budgets  to 
support  strategic  technologies;  and  (ii)  use  the 
Special Infrastructure Fund to strengthen research 
infrastructure and universities. Germany’s research 
system  could  also  benefit  from  strengthening  the 
attractiveness  and 
research 
careers and modernising personnel structures. This 
could  be  achieved  in  particular  by  creating  more 
permanent  positions  below  that  of  the  professor 
position  and  by  strengthening  the  tenure  track 
programme (86). 

transparency  of 

(i)  ensure 

that 

to: 

Germany’s  R&I  funding  framework  can  be 
more  effective  and  efficient.  Currently,  only  a 
minority  of  federal  R&I  funding  programmes 
undergo causal evaluation to assess whether their 

(79)  European Commission, 2025, European Innovation 

Scoreboard (EIS), country profile: Germany, ec.europa.eu. 

(80)  Gross domestic expenditure on R&D as a percentage of GDP. 

(81)  The 2025 coalition agreement restates the 3.5% R&D target, 

extending it to 2030 (from 2025). 

(82)  Also, the gap to China has almost disappeared, as China 
increased its R&D intensity from 0.9% in 2000 to 1.8% in 
2010, 2.4% in 2020 and 2.8% in 2025. 

(83)  The Hightech Agenda Germany (launched in 2025) is a 
national research and innovation strategy aimed at 
strengthening science and six key technologies to position 
Germany as a leading high-tech hub. 

(84)  Bundesbericht Forschung und Innovation (2024). 

(85)  The literature considers a one-third / two-thirds split between 
public and private R&D expenditure to be a suitable mix. See 
for example OECD, 2003, Targeting R&D: Economic and 
Policy Implications of Increasing R&D Spending. For Germany 
this would give 1.16% as a target value (i.e. one third of 
3.5%). 

(86)  Compared internationally, Germany has a very low share of 
permanent academic positions. In early-career stages, 96% 
of researchers are on fixed-term contracts; even among PhD-
qualified staff, 90% are temporary. Wissenschaftsrat, 2025, 
Personalstrukturen im deutschen Wissenschaftssystem.  

48 

 
 
 
 
 
 
 
objectives  are  achieved  cost-effectively (87).  Given 
the multiple layers of public R&I funding – at both 
federal  and  state levels  –  a more  systematic  and 
coordinated  evaluation  approach  could  increase 
the  overall  impact.  Large-scale  initiatives  such  as 
the  excellence  strategy  would  benefit  from 
rigorous  assessment  of  their  effectiveness  in 
strengthening critical mass in top-tier research (88). 
Meanwhile,  complex  administrative  and  reporting 
requirements  continue  to  burden  recipients  and 
slow 
the 
implementation  of  R&I  activities.  This  includes 
burdensome  funding  application  procedures  and 
lengthy  public  procurement  processes (89).  Against 
this  background,  swift  adoption  of  the  planned 
Innovation  Freedom  Act  aimed  at 
reducing 
bureaucratic  hurdles  to  securing  research  funding 
would be highly beneficial (90).  

decision-making 

down 

and 

towards new tech fields is slow compared with the 
US. This is also reflected in the level of patenting 
activity  which,  though  still  high  by  average  EU 
standards,  has  decreased  substantially  over  the 
last  12  years (92).  To  encourage  a  shift  towards 
high-tech fields, and in line with the 2025 country-
specific  recommendation  on 
increasing  public 
funding  for  transformative  innovation,  the  Agency 
for  Disruptive  Innovation  (SPRIND)  supports  the 
technologies. 
development 
Results  from  the  first  evaluation  show  that  the 
agency’s  instruments  are  well  suited  to  fostering 
breakthrough  innovations,  particularly  following 
the  expanded  autonomy  granted  by  the  SPRIND 
Freedom  Act (93).  However,  there  is  room  for 
further  flexibility  (94).  The  agency’s  budget  has 
increased  but  remains  below  that  of  relevant 
players  in  other  countries  (relative  to  GDP) (95), 
while  relevant  expert  bodies  are  calling  for  more 
funding for breakthrough innovation (96). 

breakthrough 

of 

Business innovation  

Germany’s  reliance  on  mid-tech  industries 
and a weaker innovation output rate suggest 
lock-in effects and difficulties in adapting to 
emerging technologies. Business expenditure on 
R&D as a percentage of GDP is well above the EU 
average  (2.14%  vs  1.49%  in  2024)  but  has 
broadly  stagnated  in  recent  years  and  is  well 
below  global  leaders.  R&D  activity  in  Germany  is 
in  mid-tech  sectors  such  as 
concentrated 
automotive, relying even more heavily on mid-tech 
industries  than  the  EU  overall (91).  The  shift 

(87)  Expertenkommission Forschung und Innovation, 2024, 

Gutachten zu Forschung, Innovation und Technologischer 
Leistungsfähigkeit Deutschlands 2024, e-fi.de.  

(88)  OECD, 2025, OECD Economic Survey: Germany 2025 and 

Schubert et al. (2024): Research, Technology and Innovation 
Policy Must Focus on the Generation of Critical Mass as well 
as Expertenkommission Forschung und Innovation, 2026, 
Gutachten zu Forschung, Innovation und Technologischer 
Leistungsfähigkeit Deutschlands 2026. 

(89)  See for instance Stifterverband, 2025, Wege aus der 

Bürokratie. 

(90)  The Innovationsfreiheitsgesetz, currently being prepared, 
aims to reduce bureaucratic hurdles to securing research 
funding, lower administrative burdens and increase freedom 
for innovation. See among others Expertenkommission 
Forschung und Innovation, 2025, Keine Zeit verlieren in der 
Forschungs- und Innovationspolitik for concrete proposals on 
what the act should entail. 

(91)  See OECD, 2022, Innovation Review: Germany 2022, oecd-
ilibrary.org; Dietrich et al., 2024, ‘EU-Innovationspolitik: Wie 
entkommt Europa der „Midtech-Falle“ and European 

to  advance 

The uptake of digital technologies by firms is 
gradually increasing, and Germany is making 
strong  efforts 
its  digital 
technologies  and  infrastructure.  The  country 
performs  above  the  EU  average  on  basic  digital 
intensity  for  SMEs  and  the  uptake  of  AI  by 
enterprises. Cloud adoption by enterprises remains 
broadly in line with the EU average, while the use 
of  data  analytics  has  stagnated  (37.1%  in  2023 
and  37.7%  in  2025).  This  is  in  contrast  with 
continued progress at EU level (33.3% in 2023 and 

Commission’, 2023 EU Industrial R&D Investment 
Scoreboard. 

(92)  Patent applications filed under the Patent Cooperation Treaty 
per billion of GDP (in purchasing power standards EUR) stood 
at 4.3 in 2022 (EU average 2.8), compared with 5.9 in 2016 
and 7.2 in 2010. Other sources also show a slower increase 
in patent intensity (per one million employed) in R&D 
intensive technologies compared with other countries 
worldwide, see: https://www.e-
fi.de/dashboard/dev/patente/patentintensitaet. 

(93)  Fraunhofer ISI, 2025, Evaluation der Bundesagentur für 

Sprunginnovationen SPRIND GmbH.  

(94)  Expertenkommission Forschung und Innovation, 2024, 

Gutachten zu Forschung, Innovation und Technologischer 
Leistungsfähigkeit Deutschlands 2024, e-fi.de. 

(95)  For instance, Defense Advanced Research Projects Agency 
(US), ARIA (UK), Innovation Fund Denmark, Innosuisse 
(Switzerland) These examples are indicative only; direct 
comparisons are difficult given differing mandates and 
objectives. 

(96)  See also Grimm et al., 2025, Eine Wachstumsagenda für 
Deutschland, calling for more funding for ‘high risk – high 
return’ projects. 

49 

 
 
 
 
39.9%  in  2025).  To  boost  digital  adoption  and 
innovation,  Germany  is introducing  new  measures 
and updating existing ones: AI service desks assist 
companies  and  public  administrations  in  adopting 
and developing AI solutions. The ‘ERP promotional 
loan  for  digitalisation’  programme  now  covers 
more  fundamental  digital  needs,  such  as  basic 
product improvements. Meanwhile,  a digitalisation 
check  assesses  companies’  digital  readiness  to 
optimise  investments.  On  semiconductors,  the 
Important  Project  of  Common  European  Interest 
(IPCEI)  on  Microelectronics  and  Communication 
Technologies  is  complemented  by  a  strategy  on 
microelectronics  for  research,  skilled  workers  and 
production.  This  aims  to  strengthen  production 
capacities  and  investment  in  the  semiconductor 
ecosystem.  In  parallel,  Germany  continues  to 
develop  interoperable  and  accessible  European 
data processing technologies via the IPCEI on Next 
Infrastructure  and  Services. 
Generation  Cloud 
cloud-edge 
a  multi-provider 
Establishing 
continuum is key for efficient data processing and 
storage. Both IPCEIs are supported by the Recovery 
and  Resilience  Facility  (investments  2.1.2  and 
2.1.3).  Overall,  higher  adoption  rates  of  digital 
technologies  and  increased  investment  in  digital 
technologies could significantly boost productivity. 
With  Germany  under-represented  in  high-growth 
sectors,  long-term  competitiveness  could  benefit 
from  shifting  focus  towards  innovation,  e.g.  in  AI, 
semiconductors, and ICT more broadly (97). 

of 

small 

its  R&D  tax 
Germany  has  strengthened 
incentive  scheme  to  improve  the  innovation 
activity 
to  medium-sized 
enterprises.  R&D  expenditure  by  SMEs  as  a 
percentage of GDP remains low (0.18% in 2023 vs 
the  EU  average  of  0.47%).  The  share  of  SMEs 
engaged  in  innovation  has  declined,  but  recent 
evidence shows that when accounting for firm size 
and  sector,  SMEs  are  often  more  active 
in 
introducing  product  or  process  innovations  than 
comparable  larger  firms,  even  with  lower  R&D 
spending.  At  the  same  time,  SME  innovation 
continues  to  be  held  back  by  shortages  of  skilled 
labour,  the  costs  and  risks  associated  with 
innovation,  and  bureaucratic  hurdles  (98).  In  2025, 
Germany  expanded  its  R&D  tax  incentive  scheme 

(97)  McKinsey, 2025, The power of one: How standout companies 

grow national productivity | McKinsey. 

(98)  Expertenkommission Forschung und Innovation, 2026, 

Gutachten zu Forschung, Innovation und Technologischer 
Leistungsfähigkeit Deutschlands 2026. 

50 

to 

keeping 

once  more  by  raising  the  maximum  eligible 
the 
EUR 12  million, 
amount 
reimbursement  rate  at  25%  (35%  for  SMEs),  and 
introducing a flat 20% allowance to cover general 
indicate  that 
overhead  costs.  Recent  reports 
tax 
the 
companies  were 
incentive  scheme  even  before  the  most  recent 
expansion. Nevertheless, further simplification and 
targeted 
the 
adjustment 
application process (99). 

increasingly  using 

facilitate 

could 

of 

limit 

channels 

barriers 

research) 

remains  high, 

Structural 
the 
commercialisation  of  academic  research. 
Classical 
science–business 
collaboration  remain  strong,  driven  by  dedicated 
organisations  such  as  Fraunhofer,  while  public–
private  scientific  co-publications  account  for 
11.7%  of  total  publications  in  2024  (EU  average: 
7.6%). At the same time, privately funded R&D in 
public  research  organisations  and  universities 
though 
(contractual 
slightly  declining (100).  However,  this  model  has 
mainly  supported  incremental  innovation,  while 
more  fundamental  transfer  of  knowledge  and 
technology - e.g. in the form of academic spin-offs 
-  has  remained  limited (101).  One  contributing 
factor is that despite being formally recognised as 
a core mission, technology and knowledge transfer 
often  receives  limited  strategic  attention,  funding 
and  career  incentives,  discouraging  researchers 
from  engaging 
in  commercialisation.  Relevant 
support  structures  such  as  technology  transfer 
offices  often  suffer  from  financial  and  personnel 
instability  and  high  dependency  on  third-party 
funding (102).  In  addition,  as  intellectual  property 
typically  lies  with  the  institution,  entrepreneurs 
in 
face  bureaucratic  and 

financial  hurdles 

(99)  ZEW, 2025, Forschungszulage: Ein neues Förderinstrument 

wächst und gedeiht and Expertenkommission Forschung und 
Innovation, 2026, Gutachten zu Forschung, Innovation und 
Technologischer Leistungsfähigkeit Deutschlands 2026. 

(100)  As measured in public expenditure on R&D financed by 
business enterprises (national) as % of total public 
expenditure on R&D. It stood at 11.29 in 2023 (EU average 
at 7.51) but was on a decreasing trend in the years prior. 

(101)  See for instance OECD, 2022, Innovation Review: Germany 

2022, oecd-ilibrary.org and more recently 
Expertenkommission Forschung und Innovation, 2026, 
Gutachten zu Forschung, Innovation und Technologischer 
Leistungsfähigkeit Deutschlands 2026. 

(102)  See Stifterverband, 2025, Gruendungsradar. 

 
 
 
accessing 
months (103).  

it,  with  negotiations  averaging  18 

Entrepreneurial dynamism 

launched  new 

Germany  has 
flagship 
initiatives  to  accelerate  commercialisation 
activities,  in  line  with  the  2025  country-
specific  recommendation.  July  2025  saw  the 
launch  of  the  ‘Start-up  Factories’  initiative  to 
strengthen  spin-off  activity  in  selected  hubs (104). 
Looking  forward,  the  government  aims  to  bundle 
transfer-relevant  instruments  under  the  ‘Initiative 
Forschung  &  Anwendung’ (105).  The  set-up  will 
require  good  coordination  to  avoid  overlaps, 
particularly as two ministries are still involved (106). 
To  simplify  and  increase  flexibility  of  funding 
instruments, the initiative could build on examples 
such  as  the  DATIpilot  and  SPRIND  instruments. 
This  should  be  paired  with  a  reduction  of 
bureaucratic 
to 
entrepreneurs  transferring  intellectual  property. 
The  coalition  agreement  envisions  a  national 
intellectual  property  strategy  that  should  enable 
the creation of spin-offs in 24 hours, but concrete 
implementation is lacking (107). Stronger budgetary 
prioritisation  of  transfer  activities  at  state  and 
university  level (108)  would  strengthen  incentives 
for  researchers  and  universities  across  research 
funding 
in 
commercialisation. Greater consistency across R&I 
funding 
address 
fragmentation  and  support  a  more  systematic 
transition  from  early-stage  research  to  higher 
technology readiness levels (109). 

programmes 

schemes 

financial 

hurdles 

engage 

would 

help 

and 

to 

(103) Ibid. 

(104) Start-up Factories. 

(105) This  should  include  three  pillars,  including  the  new  ‘Applied 
und 

(Deutsche  Anwendungs- 

Research  Association’ 
Forschungs Gemeinschaft - DAFG).  

(106) The  two  ministries  involved  are  the  Federal  Ministry  of 
Research, Technology and Space and the Federal Ministry for 
Economic Affairs and Energy.  

(107) In  this  context,  the  planned  IP  strategy  requires  swift 
adoption, 
expert 
recommendations.  The  aim  is  to  reduce  hurdles  to  the 
transfer of intellectual property. 

account 

existing 

taking 

into 

(108) See Stifterverband, 2025, Gruendungsradar. 

(109) Expertenkommission Forschung und Innovation, 2026, 

Gutachten zu Forschung, Innovation und Technologischer 
Leistungsfähigkeit Deutschlands 2026. 

51 

increases 

Germany’s  overall  number  of  start-ups  has 
grown recently, but sustaining this trend will 
depend  on  further 
in  venture 
capital.  The  number  of  new  start-ups  increased 
by 29% between 2024 and 2025, after growing by 
11%  the  previous  year.  However,  the  number  of 
unicorns  (110)  remains  below  that  of  international 
competitors  (111)  and  it  remains  to  be  seen 
whether  the  downward  trend  in  the  high-tech 
business  formation  rate  can  be  reversed  (see 
Graph A4.1 below). Venture capital has tripled over 
the  last  10  years  (as  a  percentage  of  GDP)  but 
remains  substantially  below  that  of  the  US (112). 
Increases  took  place  across  the  different  stages 
(seed, start-up, later-stage), with the gap to the US 
still  particularly  pronounced  at  the  later  stage.  In 
country-specific 
line 
recommendation to facilitate the diversification of 
the  economy,  business  dynamism  and  boost 
private investment by supporting entrepreneurship 
(see  also  next  paragraph),  Germany  is  making  an 
effort  to  increase  the  level  of  venture  capital. 
Later-stage funding has benefited (among others) 
from  initiatives  such  as  the  Future  Fund  (EUR 10 
billion  until  2030).  More  recently  it  has  been 
supplemented  by  the  WIN  initiative (113)  and  the 
Deutschlandfonds (114).  Considering  the  sizeable 

2025 

with 

the 

(110) New companies with a market capitalisation of over one 

million dollars. 

(111) See  Start-up  Verband,  2026,  Startup-Neugründungen  in 
Deutschland  and  Deutscher  Startup  Monitor,  Bitkom,  2025, 
Unicorn Report 2025. In mid-2025 Germany was home to 31 
unicorns,  while  the  UK  had  55  and  the  US  682  (in  early 
2025). 

(112) 2013:  0.023%,  2022:  0.085%,  2024:  0.069%  (venture 
capital in the US stood at 0.54% of GDP in 2024). The 2024 
figures  for  other  selected  countries  are:  Denmark  –  0.12%, 
France  -  0.09%,  Sweden  –  0.12.  Data  from  Invest  Europe. 
See  also  other  sources  that  indicate  a  stagnation  between 
2024 and 2025: KFW. 

(113) The  WIN 

initiative  strengthens  Germany’s  growth  and 
innovation  capital  market  by  mobilising  private  investment 
for later-stage financing. It complements the Future Fund by 
improving conditions for venture and growth capital. 

(114) The Deutschlandfonds is a framework addressing a spectrum 
of investment needs, making it easier for private companies 
and investors to invest in Germany. For instance, through the 
Deutschlandfonds, KfW co-invests with private investors in 
large venture and growth capital rounds for German start-
ups and scale-ups, with a focus on later-stage financing and 
industrial technologies. 

 
 
 
 
gap  with  the  US,  continued  efforts  to  broaden 
access to venture capital across all growth phases 
could  play  a  major  role  in  sustaining  momentum 
and  strengthening  Germany’s  start-up  ecosystem 
(see Annex 6 for more details). 

Graph A4.1: Business formation rates in Germany 
by sector (2010-2024) 

(1) High-tech encompasses industries with the highest R&D 
intensity and advanced technology industries with moderate 
R&D intensity (see Neuhaeusler et al. (2022) for more 
information). The business formation rate is calculated as the 
number of start-ups in relation to the number of companies. 
Source: Based on the German Commission of Experts for R&I 
(2026). 

Timely  adoption  of  planned  policy  initiatives 
to  reduce  regulatory  barriers  can  support 
innovation. Germany  currently  faces  fragmented 
and  inconsistent  rules  for  accessing  and  using 
research  data  (e.g.  varying  data  access  rules 
between  universities  and  states).  Addressing  this 
will require swift adoption of the planned research 
data act to simplify and legally secure data access 
through  privacy-compliant  sharing  and  reduced 
bureaucracy (115). 
regulatory 
sandboxes  act,  designed  to  formalise  controlled 
testing  of  innovative  technologies,  has  yet  to  be 
adopted. 
the 
experimentation  clauses  have  broad  definitions. 
This  would  provide  flexibility  in  testing  diverse 
to 
innovations,  make 
unforeseen  changes  and  ensure  a 
lasting 
impact (116). Reports show that Germany performs 

it  possible 

to  adapt 

proposed 

essential 

remains 

that 

The 

It 

is a public–private investment vehicle through which KfW co-
invests with private investors in large venture and growth 
capital rounds for German start-ups and scale-ups, with a 
focus on later-stage financing and industrial technologies. 

(115) Forschung & Lehre, 2025, Entwurf zu Forschungsdatengesetz 

noch in 2025.  

(116) Expertenkommission Forschung und Innovation, 2024, 

Gutachten zu Forschung, Innovation und Technologischer 
Leistungsfähigkeit Deutschlands 2024, e-fi.de. 

52 

in 

the 

the  EU  average 

above 
Innovation 
Procurement Policy Framework Benchmarking (117). 
Further  progress  depends  on  making  it  easier  for 
start-ups  and  innovative  firms  to  participate  in 
public  tenders.  This  can  be  achieved  through  the 
planned  public  procurement  acceleration  act  (118) 
and  through  greater  transparency  by  making  it 
mandatory  to  publish  tenders  on  the  federal 
e-procurement platform (119) (see Annex 5). 

is 

performance, 

developments 

challenge (120). 

This  bottleneck 

The  shortage  of  skilled  workers  affects 
Germany’s  innovation  capacity.  Almost  half 
(43.5%)  of  SMEs  consider  that  a  lack  of  skilled 
their 
workers/demographic 
greatest 
is 
particularly evident in sectors crucial to Germany’s 
artificial 
innovation 
in 
intelligence  and  for 
ICT  professionals  more 
generally (121). This is also reflected in the number 
of  computing  graduates  per  1 000  people  aged 
25-34,  which  is  rising  and  at  a  similar  level  than 
the  EU  average  (3.8  in  2024) (122).  While  post-
secondary  educational  attainment  remains  low, 
Germany  has  the  highest  rate  for  PhD  graduates 
(see Annexes 11 and 13). 

e.g. 

Germany is actively addressing the shortage 
of  skilled  workers.  To  further  attract  and 
develop innovative talent, Germany’s plans include 
updating  its  skilled  labour  strategy,  attracting 
international  start-up  founders  and  boosting 
women’s participation in science, particularly in ICT 
fields (123). 
granted 
approximately  56 000  EU  Blue  Cards for  highly 

Germany 

2024, 

In 

(117) European Commission, 2024, Benchmarking of national 
policy frameworks for innovation procurement, Country 
profile Germany. The study assesses 10 indicators, including 
spending targets for innovation procurement, existence of 
action plans, and other measures of national innovation 
procurement capacity. 

(118) Vergabebeschleunigungsgesetz. 

(119) OECD, 2025, OECD Economic Survey: Germany 2025. 

(120) Expertenkommission Forschung und Innovation, 2026, 

Gutachten 2026, e-fi.de. 

(121) OECD (2024): Artificial Intelligence Review of Germany and 
Cedefop Labour and Skills Shortage Index | CEDEFOP. 

(122) At the same time, the share of STEM graduates (new 
graduates in science and engineering per thousand 
population) remains above the EU average (18.27 vs 16.82 
in 2024). 

(123) See Hightech Agenda, 2025. 

1.02.03.04.05.06.07.0101112131415161718192021222324Business formation rate overallBusiness formation rate in high-tech sectorsBusiness formation rate in advanced tech sectors 
        
 
 
they  are  not  compulsory (129).  However, 
the 
Standing Conference of the Ministers of Education 
and  Cultural  Affairs  recognises  career  orientation 
as  a  compulsory  aspect  of  all  educational 
programmes (130) 
economic 
education (131)  within  this  framework.  Although 
entrepreneurship  education is not a defined focus 
in  school  curricula,  several  nationwide  initiatives 
exist (132).  There  is  also  a  growing  number  of 
programmes  in  higher  education  that  aim  to 
support entrepreneurship (133). 

includes 

and 

skilled  professionals  (124).  This  represents  72%  of 
the  total  across  the  EU.  Germany  continues  to 
attract  a  high  number  of  international  students, 
making 
it  one  of  the  top  hosting  countries 
worldwide (125).  However,  lengthy  and  complex 
administrative  procedures  still  limit  access  to 
(126).  Since  2023, 
highly  educated  workers 
Germany  has  simplified  legal  requirements  for 
recruiting  skilled  workers  from  non-EU  countries, 
including  recognition  of  foreign  qualifications  and 
a pathway for qualified professionals (127). Further 
support may come from the announced Work-and-
Stay-Agency.  Comparable  steps  are  proposed  in 
the 
education 
internationalisation strategy, which calls for easing 
visa and access rules and improving recognition of 
prior learning (see Annex 11). Germany set up a “1 
000  Heads  Programme”  with  to  aim  to  attract 
international 
in 
response to recent pressure on US academia, with 
286 researchers relocated in the first year(128). 

researchers,  particularly 

2024–2034 

higher 

top 

Germany  is  one  of  only  a  few  EU  countries 
lacking  a  top-level  strategy  to  support 
entrepreneurship  education.  Entrepreneurship 
education  is  neither  integrated  into  primary  and 
general  secondary  education  through  a  cross-
curricular  approach  nor  taught  as  a  standalone 
subject. As in most EU countries, entrepreneurship 
education is not explicitly mentioned in the teacher 
competence  framework,  nor  is  there  an  explicit 
reference to entrepreneurship education in training 
opportunities 
Nonetheless, 
entrepreneurial  experiences  are  encouraged  and 
supported as extracurricular activities, even though 

teachers. 

for 

(124) The EU Blue Card is a fast-track tool for recruiting highly 

skilled non-EU nationals with higher education or equivalent 
experience (Source for data: Eurostat). 

(125) DAAD, 2025, Number of international students well over 

400 000.  

(126) Expertenkommission Forschung und Innovation, 2024, 

Gutachten zu Forschung, Innovation und Technologischer 
Leistungsfähigkeit Deutschlands 2024, e-fi.de. 

(127) See BMBF and KMK, 2024, Internationalization of the Higher 

Education Institutions in Germany; Under the SGB III 
Modernisierungsgesetz, responsibility for the recognition of 
foreign qualifications will be transferred to the Federal 
Employment Agency (the Bundesagentur für Arbeit) from 
2029, institutionalising the previously ESF co-funded IQ 
Network structures (see Annex 13). 

(129) European Commission / EACEA / Eurydice, 2025, 

Entrepreneurship education at school in Europe – 2025. 
Eurydice Report. 

(130) KMK, 2006, Vereinbarung über die Schularten und 

Bildungsgänge im Sekundarbereich I – Beschluss der 
Kultusminister Konferenz vom 03.12.1993 Ld.F. vom 
02.06.2006. 

(131) KMK, 2025, Empfehlung zur Verbraucherbildung an Schulen 
– Beschluss der Kultusminister Konferenz vom 12.09.2013 
i.d.F. der Bildungsministerkonferenz vom 05.06.2025,  

(132) e.g. 'Gründung in School’, ‘Jugend Gründet’, ‘Deutscher 

Gründerpreis für Schüler:innen’. 

(128) Homepage - Ein Jahr 1.000-Köpfe-Plus: 286 

Spitzenforschende gefördert - BMFTR. 

(133) The Hochschulkompass for example lists 391 study 

programmes for Business and Organisational Management. 

53 

 
 
 
Table A4.1:  Key innovation indicators 

EU average for the last available year or the year with the highest number of country data. * Break in series 
Source: Eurostat, DG JRC, OECD, Science-Metrix (Scopus database), Invest Europe, European Innovation Scoreboard 

54 

R&D intensity (gross domestic expenditure on R&D as % of GDP)2.682.883.093.043.133.13:2.243.44Public expenditure on R&D as % of GDP0.890.91.030.92*0.92*0.92:0.720.64Scientific publications of the country within the top 10% most-cited publications worldwide as % of total publications of the country 11.8811.2710.3510.21:::9.4412.31Researchers (FTEs) employed by public sector (Gov+HEI) per thousand active population3.63.94.44.3*4.2*4.2:4.3:International co-publications as % of total number of publications44.2649.0353.3953.7254.1655.92:57.24:Business enterprise expenditure on R&D (BERD) as % of GDP1.791.972.062.052.14*2.14:1.492.69Business enterprise expenditure on R&D (BERD) performed by SMEs as % of GDP:0.17::0.18*::0.470.30Researchers employed by business per thousand active population4.7*5.76.77.17.4*7.6:5.9:Patent applications filed under the Patent Cooperation Treaty per billion GDP (in PPS €)7.165.865.134.30:::2.812.20Employment share of high-growth enterprises measured in employment (%)::::0.650.83:0.87:SMEs with at least a basic level of digital intensity% SMEs (EU Digital Decade target by 2030: 90%)::::61.38:73.5571.39:Data analytics adoption% enterprises (EU Digital Decade target by 2030: 75%)::::37.08:37.6739.85:Cloud adoption% enterprises (EU Digital Decade target by 2030: 75%)::::38.50:46.0346.69:Artificial intelligence adoption % enterprises (EU Digital Decade target by 2030: 75%)::::11.5519.7525.9719.95:Public-private scientific co-publications as % of total number of publications9.9610.4511.211.8111.9111.72:7.62:Public expenditure on R&D financed by business enterprises (national) as % of GDP0.110.120.11:0.1*::0.060.02Total public-sector support for BERD as % of GDP:0.08::0.13*::0.21:R&D tax incentives: foregone revenues as % of GDP:0.000.000.000.01::0.100.16BERD financed by the public sector (national and abroad) as % of GDP :0.08::0.12*::0.11:Venture capital (market statistics) as % of GDP (calculated as a 3-year moving average)0.030.030.050.080.080.07:0.06:Seed stage funding share (% of GDP)0.000.000.000.010.010.00:0.01:Start-up stage funding share (% of GDP)0.010.010.030.040.040.03:0.03:Later-stage funding share (as % of GDP)0.020.010.020.040.040.03:0.03:New graduates in science & engineering per thousand population aged 25-34:17.1317.618.5618.34*18.27:16.82:Graduates in the field of computing per thousand population aged 25-34:2.422.773.343.42*3.86:3.84:R&D investment & researchers employed in businessesInnovation outputsDigitalisation of businessesAcademia-business collaborationInnovative talent Public support for business innovationFinancing innovationScience and innovative ecosystemsHeadline indicatorGermany2010201520202022202320242025EU average (1)US 
 
  
 
ANNEX 5: SINGLE MARKET AND INDUSTRY 

country-specific 

communication  networks. 

Germany’s  business  environment  has  many 
strengths,  but  faces  structural  challenges 
that  impact  its  long-term  competitiveness. 
The  2025 
recommendations 
(CSRs)  called  for  measures  to  facilitate  the 
diversification  of  the  economy,  boost  private 
investment,  entrepreneurship  and 
innovation, 
simplify  regulation  and  reduce  administrative 
burden,  speed  up  the  digitalisation  of  the  public 
administration  and  accelerate  the  roll-out  of  very 
high-capacity 
The 
German recovery and resilience plan (RRP) has led 
to  improvements  like  enhanced  digital  public 
services  and  streamlined  approval  processes. 
However,  business  investment  continued to  fall in 
2025.  While  Europe  is  an  important  stabiliser  for 
German  exports,  businesses  still  face  obstacles 
within  the  Single  Market, 
including  complex 
business  establishment  procedures,  restrictive  or 
diverging national regulations and a lack of digital 
administrative procedures. The federal government 
has  taken  steps  to  boost  investment,  reduce  red 
tape  and  modernise  public  administration,  which 
contribute to addressing the related CSRs. 

Business dynamics 

Germany  has  an  open  and  diversified 
economy, but it is particularly vulnerable due 
to its strong export orientation. Manufacturing 
contributed  19.4%  to  total  value  added  in  2025, 
which  is  considerably  above  the  EU  average  of 
15.9%  (134).  Motor  vehicles  remain  Germany’s 
most  important  export  goods  (16.3%  of  total 
exports or EUR 254.0 billion in 2025), followed by 
machinery  (13.7%  or  EUR 214.6  billion),  data 
processing  equipment,  electronic  and  optical 
products (8.7% or EUR 136.2 billion) and chemical 
products (8.6% or EUR 135.0 billion) (135). Much of 
Germany’s  economic  strength  is  based  on  its 
‘Mittelstand’, a network of highly specialised small 
to  medium-sized  enterprises  (SMEs)  and  midcap 
businesses, often grouped in industry clusters (136). 

(134) Federal Statistical Office, 2026, Gross value added, 

www.destatis.de/. 

(135) Federal Statistical Office, 2026, Foreign trade, 

www.destatis.de/. 

However, SMEs are even more affected than larger 
companies  by  structural  challenges  such  as  high 
energy  and  labour  costs,  administrative  burden 
and  economic  and  geopolitical  uncertainties  (137). 
Furthermore,  business  succession 
is  a  major 
challenge,  as  an  increasing  number  of  business 
owners cannot find a suitable successor (138). 

The challenging economic situation has led to 
further  reductions  in  business  investment. 
Investment  in  machinery  and  equipment  fell  by 
about 5.2% in 2025, following a decline by 6% in 
2024.  German  firms  also  invest  less  in  new 
products or services than the EU average (14% vs 
20%  EU  average)  but  more  in  replacing  existing 
equipment  (55%  vs  43%)  (139).  While  the  ifo 
Business Climate Index showed a modest recovery 
in  2025,  it  has  fallen  again  to  a  four-year  low  in 
April  2026  due  to  the  Middle  East  conflict  (140). 
However,  the  high  foreign  direct  investment  (141) 
in  the  EU 
underlines  Germany’s  central  role 
economy and still attractive business location. 

The  federal  government  is  taking  steps  to 
boost  investment  and  entrepreneurship.  An 
Investment  Programme  Act  adopted  in  July  2025 
introduced additional tax incentives and a gradual 
reduction in corporate income tax by 1 percentage 
point per year from 2028 to 2032 (142) (see Annex 
3  and  Annex  4).  In  December  2025,  a  ‘Germany 
Fund’  was  launched,  managed  by  the  national 
investment  and  development  bank  KfW.  The 
government provides about EUR 30 billion in public 
funds  and  guarantees,  which 
intended  to 
generate  around  EUR 130  billion  in  additional 
investment  (143).  The  Location  Promotion  Act, 
adopted 
in  December  2025,  aims  to  boost 
investment  by  improving  financing  conditions  for 
infrastructure  and  renewable  energy  projects  as 
well  as  SMEs  and  start-ups  (144).  These  measures 
contribute  to  addressing  the  2025  CSR  to  boost 

is 

(137) German Chamber of Industry and Commerce, 2025, 

Mittelstand droht dauerhaft abzurutschen, www.dihk.de/. 

(138) German Chamber of Industry and Commerce, 2025,  Report 

Unternehmensnachfolge 2025. 

(139) European Investment Bank, 2025, EIB investment survey. 

(140) ifo Institute, 2026, ifo Business Climate Index for Germany. 

(141) Eurostat, 2026, Data on FDI stock. 

(136) Clusterplattform Deutschland, 2026, Cluster Policy, 

www.clusterplattform.de/. The German cluster platform 
currently includes 480 cluster organisations, also supported 
by the ‘go-cluster’ and ‘clusters4future’ programmes. 

(142) Federal Government, 2025, Investitions-Sofortprogramm. 

(143) Federal Government, 2025, Deutschlandfonds. 

(144) Federal Government, 2025, Standortfördergesetz. 

55 

 
 
 
 
 
private investment by supporting entrepreneurship 
and improving access to finance for start-ups and 
scale-ups (see also Annex 4 and Annex 6). 

Lack  of  skilled  staff,  high  energy  costs  and 
uncertainty  about  the  future  are  highlighted 
by  firms  as  main 
investment  obstacles. 
According to the EIB Investment Survey,  the main 
long-term  obstacles  to  investment  reported  by 
German  firms  in  2025  were  the  availability  of 
skilled staff (91%, 2024: 90%), high energy costs 
(87%,  2024:  83%)  and  uncertainty  about  the 
future  (87%,  2024:  80%)  (145).  The  availability  of 
skilled  staff  remains  a  major  concern,  though 
pressure  has  eased  since  2023  (see  Annex  11). 
The  recent  surge  in  energy  prices  following  the 
Middle East conflict has added further pressure on 
many businesses (see Annex 9). 

the 

challenging 

representing  an 

Despite 
economic 
environment,  the  number  of  start-ups  has 
increased  in  the  past  year.  In  2025,  a  record 
high  of  3 568  newly  founded  start-ups  was 
reached, 
increase  of  29% 
compared  with  2024.  This  positive  trend  was 
evident  in  almost  all  federal  states,  but  was 
particularly  strong 
in  Bavaria,  North  Rhine-
Westphalia  and  Saxony.  The  software  sector 
thereby  showed  the  largest  absolute  increase, 
driven  in  particular  by  AI-based  business  models. 
(146).  However, 
longer-term 
looking  at 
development  and  structure,  despite  the  recent 
increase,  start-up  activity  has  tended  to  be  on  a 
sideways  trend  since  2018  and  the  general 
propensity to start a business in Germany remains 
relatively low (147) (see Annex 4). 

the 

Insolvencies  have 
increased  significantly 
while  payment  performance  by  public 
authorities  has  worsened.  While  German  SMEs 
overall  still  have  good  access 
finance, 
companies report a tightening of credit conditions 
and more restrictive bank lending  (148) (see Annex 
6).  Overall,  the  share  of  SMEs  experiencing  late 
payments  is  below  the  EU  average  (33.7%  vs 
48.7%)  (149).  However,  while  in  previous  years 
Germany was among the earliest payers in the EU, 

to 

in  2024  it  ranked  fifth  among  EU  Member  States 
with the longest payment times in government-to-
business  transactions  and  the  average  payment 
time was the second highest observed for German 
public authorities over the 2019-2024 period (150). 
In  2025  the  payment  gap  also  exceeded  the  EU 
average  (see  Table A5.1)  At  the  same  time, 
insolvencies  increased  significantly,  reaching  the 
highest level in 20 years in early 2026, due to the 
challenging  economic  environment  (151),  but  late 
payments  also  weigh  on 
liquidity-constrained 
SMEs. 

Business environment 

German  businesses  call  for  a  substantial 
reduction  in  administrative  burden.  According 
to  the  EIB  Investment  Survey,  the  burden  of 
business  regulation  was  reported  as  being  an 
obstacle by 83% of businesses in 2025, which was 
considerably  higher  than  the  EU  average  of  69% 
(152).  The  national  regulatory  control  council 
reported a noticeable increase in compliance costs 
over the last years (153). Efforts over the last years 
aiming to reduce red tape provided only marginal 
relief (see Annex 7). 

There are ambitious objectives to reduce red 
tape  and  modernise  federal  and  regional 
public  administration.  In  line  with  the  CSR  to 
simplify  regulation  and  reduce  administrative 
burden, several ongoing measures aim to improve 
the  business  environment.  Under  Germany’s  RRP 
(154),  Germany  is  modernising  registers  and  is 
implementing  the  Online  Access  Act.  In  December 
2025, federal  and regional  authorities launched a 
state  modernisation  agenda,  focused  on  driving 
digitalisation  and  reducing  bureaucracy  (155)  (see 
Annex  7).  In  November  2025,  the  government 

(150) European Commission, 2025, EU Payment Observatory, 

Annual Report 2025. 

(151) Leibniz-Institut  für  Wirtschaftsforschung  Halle  (IWH),  2026, 

Insolvenztrend, iwh-halle.de. 

(152) European Investment Bank, 2025, EIB investment survey. 

(145) European Investment Bank, 2025, EIB investment survey. 

(153) National Regulatory Control Council, 2025, Annual Report, 

(146) Start-up Verband, 2026, https://startupverband.de/. 

(147) KfW 2025, Gründungsmonitor, KfW-Gründungsmonitor. 

(148) KfW, 2026, KfW-ifo-Kredithürde, kfw.de. 

normenkontrollrat.bund.de. 

(154) European  Commission,  2026,  Germany’s 

recovery  and 

resilience plan. 

(155) Federal Government, 2025, Föderale 

(149) ECB, 2026, Survey on the access to finance of enterprises. 

Modernisierungsagenda. 

56 

 
 
 
various 

regulations, 

adopted  a  comprehensive  package  to  further 
reduce  bureaucracy  (156).  Eight  adopted  measures 
aim  to,  amongst  other  things,  simplify  trade  and 
tax 
reporting 
abolish 
obligations  and  digitise  the  execution  of  property 
contracts.  An  additional  50  planned  measures 
include an infrastructure reform law to streamline 
and digitise planning and approval processes, and 
a  further  reduction  in  sustainability  reporting 
requirements.  Germany’s  medium-term  fiscal-
structural  plan  includes  commitments  to  further 
cut  red  tape  for  businesses,  individuals  and 
administration. 

The  federal  government  aims  to  accelerate 
(157). 
business  establishment  procedures 
Setting  up  a  company  takes  about  three  to  six 
weeks,  depending  on  the  legal  form  and  type  of 
business. The government aims to reduce this time 
by implementing a one-stop  shop  for registration, 
allowing  companies  to  register  within  24  hours 
through  a  new  web  portal  as  of  2028.  This  will 
simplify digital registration by using the federal ID 
number 
identification  and  automatically 
forwarding the data to various authorities such as 
the  commercial  register,  the  tax  office  and  social 
security  (158).  Some  regions  already  facilitate 
faster  and  fully  digital  business  registration,  e.g. 
Schleswig-Holstein (159) (see Annex 7). 

for 

Although  the  trends  and 
initiatives  for 
connectivity  infrastructure  are  promising, 
there is still  room  for  improvement.  Fibre-to-
the-premises  (FTTP)  coverage 
increased  from 
29.8%  in  2023  to  36.8%  in  2024,  but  was  still 
significantly below the EU average of 69.2% (160).  
Coverage is higher in the north than in other parts. 
The  coverage  of  very  high-capacity  networks  in 
rural  areas  increased  from  37.6%  in  2023  to 
45.2%  in  2024  but  remained  below  the  EU 
average  of  61.9%. Overall  5G  coverage  increased 
to 99% (above the EU average of 94.4%), close to 
(see  also  Annex  18).  A 
saturation 

levels 

(156) Federal Government, 2025, Bundesregierung beschließt 

umfassendes Entlastungspaket. 

(157) Part of the barriers highlighted in the Single market strategy 
(‘Terrible Ten’) and the 2026 Annual Single Market and 
Competitiveness Report. 

(158) Federal Government, 2025, Modernisierungsagenda. 

(159) Start-up Hafen Schleswig-Holstein, 2026, Unternehmen 

online gründen mit startuphafen.sh. 

(160) European Commission, 2025, Germany 2025 Digital Decade 

Country Report. 

57 

government study identifying areas without mobile 
broadband  provides  a  detailed  data  basis  for 
targeted  action  to  improve  rural  coverage  (161). 
Amendments  to  the  German  communication  law 
are  expected  to  accelerate  the  network  roll-out 
and  could  contribute  to  addressing  the  2025  CSR 
to  accelerate  the  roll-out  of  very  high-capacity 
digital communication networks. 

transport 

infrastructure,  which 

Public  investment  in  infrastructure  is  set  to 
perform  strongly.  Germany  has  a  well-
developed 
is, 
however,  in  need  of  maintenance  and  upgrading. 
The  federal  government  decided  to  invest  about 
EUR 115  billion  in  2025  and  EUR 120  billion  in 
2026  (162).  These  measures  help  to  address  the 
2025  CSR  to  strengthen  public  investment.  While 
Germany made progress on digitalising its railway 
infrastructure  by  installing  the  European  Rail 
Traffic  Management  System  (ERTMS),  it  is  still 
among the EU Member States with the lowest rate 
of ERTMS implementation (Annex 19). 

Single Market 

trade 
Recent  economic  volatility  and 
tensions  underlined  the  importance  of  the 
Single  Market  for  growth  and  resilience. 
German  businesses  have  a  strong  export 
orientation,  illustrated  by  an  exports-to-GDP  ratio 
of  about  41%  and  two  thirds  of  German  firms 
(163). 
being  engaged 
Germany’s industry has been particularly affected 
by  recent  trade  tensions,  a  decline  in  global 
demand and increased competition for some of its 
key export products. In 2025, exports to China and 
the  US  –  Germany’s  most  important  trading 
partners  –  declined  by  about  12%  and  8% 
respectively  (164).  Increased  exports  to  the  EU  of 
just  under  3%  almost  completely  offset  these 

international 

trade 

in 

(161) Federal Ministry for Digital Transformation and Government 

Modernisation, 2025, Analyse von weißen Flecken. 

(162) Federal Ministry of Finance, 2025, Special Fund for 

Infrastructure and Climate Neutrality. 

(163) European Investment Bank, 2025, EIB investment survey. 

(164) Federal Statistical Office, 2025, Foreign trade. 

 
 
 
declines  (165),  underlining  the  importance  of  the 
Single Market. 

to 

frictions 

Regulatory and administrative barriers to the 
Single  Market  persist,  affecting  goods  and 
services  trade  as  well  as  the  freedom  of 
business  establishment.  Business  associations 
(166)  and  economic  experts  (167)  call  for  trade 
barriers  to  be  reduced  and  cross-border  business 
activities,  financing  and  start-ups  to  be  made 
easier.  Regarding  goods,  businesses  report  that 
divergent requirements for waste shipment across 
Member  States  and  within  Germany  as  well  as 
specific  requirements  for  printed  food  contact 
materials  increase  compliance  costs  for  cross-
border  operations,  creating 
the 
the  Single  Market. 
seamless  functioning  of 
Complex  processes  for  mandatory  registration  for 
recycling  programmes  were  also  reported  to  add 
to  the  administrative  burden  for  cross-border 
providers.  Regarding  services,  businesses  report 
that  burdensome  procedures  for  the  posting  of 
workers,  such  as  those  provided  under  the 
Minimum Wage Act, create additional obstacles for 
cross-border  operators  (168)(169)(see  Annex  11).  
The  recognition  of  professional  qualifications  can 
also 
procedures 
time-consuming,  with 
decentralised  at  state  or  in  some  cases  chamber 
level  and  often  entailing  requirements  to  provide 
certified  copies.  The  application  process  cannot 
always  be  completed  online.  Moreover,  Germany 
cross-border 
faces 
infrastructure,  particularly  with  respect  to  rail 
transport and energy grids (see Annex 9 and Annex 
19).  

challenges 

also 

be 

in 

Restrictive or diverging regulation can pose a 
for  cross-border  and  domestic 
barrier 

(165) Institut der deutschen Wirtschaft, 2025, Entwicklung der 

deutschen Exporte im Jahr 2025 nach Ländern. 

(166) German Chamber of Industry and Commerce, 2026, 
Binnenmarkt: Europas Herzstück verwirklichen;  
2024, DIHK-Umfrage zu Binnenmarkthindernissen. 

(167) German Council of Economic Experts, 2025, Annual Report 

2025/26, www.sachverstaendigenrat-wirtschaft.de. 

(168) European Round Table for Industry (ERT), Single Market 
Compendium of Obstacles, 21 May 2025, Single Market 
Compendium of Obstacles.  

zoning 

rules.  Online 

(171).  Business  establishment 

business  activities  (170).  The  overall  regulatory 
framework  provides  favourable  conditions  for 
trade in services, but restrictions remain regarding 
the  movement  of  people  and  the  registration  of 
businesses 
is 
complicated by – depending on the company form 
–  non-digital  procedures  in  some  regions  and 
notarisation  requirements  as  well  as  different 
business 
municipal 
registration is not possible in all municipalities and 
requirements  for  registration  and  licensing  might 
differ  between 
local  authorities.  Moreover, 
Germany’s  relatively  good  overall  performance  in 
the  economy-wide  Product  Market  Regulation 
indicator hides an uneven performance at the level 
of individual sectors and regulatory areas (172). For 
remains 
example, 
relatively  high  for  architects,  civil  engineers  and 
tax  advisers.  So  far,  progress 
in  addressing 
barriers  in  the  field  of  business  services  has 
remained  limited.  In  answer  to  a  Commission 
survey,  Germany  reported  it  fully  implemented  5 
and partially implemented 1 out of 16 of the 2021 
Commission 
The 
recommendations 
is  currently  assessing  Germany’s 
Commission 
in 
answer 
progress 
In 
implementing  the  2021  recommendations. 
addition,  Germany 
regional 
has 
construction  codes  and  variations  also  exist  for 
technical  rules,  while  the  government  is  working 
on reforms to simplify and accelerate construction 
(see  Annex  16).  The  fragmentation  of  data 
protection rules across the different federal states 
also creates additional complexity for businesses.  

restrictiveness 

to  measure 

regulatory 

diverging 

actual 

(173). 

There  is  also  room  for  improvement  in  the 
timely  and  compliant  transposition of  Single 
Market directives  (174). This would contribute to 
reducing  legal  fragmentation  and  uncertainty  for 
firms.  Germany  ranks  14th  in  the  EU  average 
(1.1%) but above the target set by the EU Council 
in  transposing  EU  directives  into  national  law. 
Regarding  the  conformity  of  the  transposed 
directives,  it  ranks  low  (21st)  and  below  the  EU 

(170) Part of the barriers highlighted in the Single market strategy 
(‘Terrible Ten’) and the 2026 Annual Single Market and 
Competitiveness Report. 

(171) OECD, 2025, Services Trade Restrictiveness Index (STRI). 

(172) OECD, 2025, Product market regulation. 

(173) COM(2021) 385 final eur-lex.europa.eu/. 

(169) Institut für Mittelstandsforschung, 2023, Influence of 
administrative burdens on the cross-border posting of 
employees by SMEs in border regions 

(174) Part of the barriers highlighted in the Single market strategy 
(‘Terrible Ten’) and the 2026 Annual Single Market and 
Competitiveness Report. 

58 

 
 
 
average  (1.5%  vs  1.1%).  The  average  duration  of 
infringement  proceedings  also  exceeds  the  EU 
average  (175).  However,  Germany  resolved  90.2% 
of  the  SOLVIT  cases  it  handled  in  2025  as  lead 
centre,  which  is  better  than  the  EU  average  of 
84.6%. 

Compliance  of  products circulating  in  the 
Single Market (176) is key to ensuring a level-
playing  field  for  law-abiding  companies  and 
the  safety  of  consumers. In Germany, 
the 
number  of  market  surveillance  investigations  has 
increased  compared  with  2019.  In  2025,  national 
authorities  reported  in  the  EU  system  for  market 
surveillance  (ICSMS)  a  total  of 136  investigations 
per  one  million  inhabitants,  which  is equivalent  to 
the  EU  median.  The  number  of  notifications 
remains limited in absolute terms, which may also 
be 
IT  national 
the 
interoperability 
ICSMS  system.  The 
upcoming  revision  of  the  Market  Surveillance 
Regulation  will  upgrade 
fully 
interoperable EU digital platform.  

insufficient 

result  of 

ICSMS 

to  a 

the 

to 

of 

the 

As  technological  change  accelerates,  the 
effectiveness 
European 
Standardisation  System  depends  on  the 
ability  of  national  standardisation  bodies  to 
mobilise  experts.  Germany  should  support  the 
German Institute for Standardisation (DIN) and the 
Electrotechnical  standardisation  institute  (DKE)  to 
ensure continued involvement of a critical mass of 
stakeholders  and  experts 
in  standardisation 
activities. Emerging fields such as AI and quantum 
technologies require not only broader participation 
but  also  continuous  upskilling  of  experts  to  make 
them  fit  for  the  digital  transition  and  remain 
responsive  to 
this 
investment  is  key  to  building  a  future-proof 
its 
standardisation  system  and  maintaining 
influence  within  the  ESS  and  at  the  international 
level,  ensuring  that  businesses  can  fully  benefit 
from the opportunities of the Single Market. 

innovation.  For  Germany, 

Digitalisation  of  public  services  remains  a 
challenge, 
for  Single  Market 
procedures,  despite  positive  developments. 
40%  of  businesses  are  dissatisfied  with  public 

including 

administration  services,  which 
is  considerably 
higher  than  the  EU  average  of  24%,  and  44%  of 
businesses  indicate  that  this  leads  to  additional 
costs for them (see Annex 7) (177). Germany is still 
lagging  behind  in  the  digitalisation  of  public 
services  in  the  context  of  the  Digital  Decade 
targets (178), including in administrative procedures 
relevant  for  the  Single  Market  for  cross-border 
users  (179).  Despite  some  recent  progress,  the  use 
of  e-IDs  remains  limited  (see  Annex  7).  Similarly, 
progress  concerning  length  and  digitalisation  of 
building permits is limited (see Annex 16). 

levels. 

Germany  has  a  decentralised  procurement 
system.  Most  procurement  is  done  at  local  and 
regional 
Indicators  suggest  a  good 
performance  overall.  For  example,  the  percentage 
of  contracts  awarded  based  on  a  single  bid  was 
18%  in  2025  (improving  from  20%  in  2024  and 
below 
signalling  more 
competition. The rate of direct awards without  an 
open or competitive procedure was 7% in 2025, in 
line  with  the  EU  median  (see  Table A5.1).  This  is 
also corroborated by the OECD indicator on public 
procurement (180). 

EU  median), 

the 

the 

Germany  has  taken  steps  to  modernise  and 
simplify 
its  public  procurement  system. 
Germany’s  medium-term  fiscal-structural  plan 
contains  a  commitment  to  reform  its  public 
procurement system by mid-2026. In line with this 
federal  government  has 
commitment, 
launched  a  reform  to  simplify,  digitalise  and 
accelerate  public  procurement  procedures,  which 
was  adopted  by  the  Bundestag  in  April  2026  and 
enters into force on July 1st 2026 (181). The reform 
package aims at awards above the EU thresholds 
and  should  reduce  red  tape  costs  by  around  EUR 
300  million  annually.  A  further  reform  of  the 
procurement regulation below the EU thresholds is 
also  planned  for  2026.  Moreover,  a  national 
notification  service  for  public  contract  awards 

(177) European Commission, 2025, Eurobarometer – Public opinion 

in the European Union, Eurobarometer 568. 

(178) European Commission, 2025, State of the Digital Decade 

2025 report. 

(179) Part of the barriers highlighted in the Single market strategy 
(‘Terrible Ten’) and the 2026 Annual Single Market and 
Competitiveness Report. 

(175) European 

Commission,  2025, 

Single  Market 

and 

Competitiveness Scoreboard, Country data: Germany. 

(176) Part of the barriers highlighted in the Single market 

strategy (‘Terrible Ten’) and the 2026 Annual Single Market 
and Competitiveness Report. 

(180) OECD, 2024, Product Market Regulation indicators. 

(181) Federal Ministry of Economic Affairs and Energy, 2026,  

      Bundesrat stimmt Vereinfachung und Beschleunigung der 

öffentlichen Beschaffung zu. 

59 

 
 
 
tenders 

centralises  data  on 
from  different 
platforms  and  contributes  to  making  Germany’s 
procurement  processes  more 
transparent  by 
publishing  data  on  awarded  contracts  using  a 
standard format (182). 

service  to  support  data-driven  oversight  of  the 
procurement lifecycle (184) (see Annex 7). 

Industry and economic security 

Energy-intensive industries have been facing 
particular  challenges.  High  energy  costs  and 
global  competition  put  pressure  on  energy-
intensive industries, which account for about 16% 
of  Germany’s  total  manufacturing  gross  value 
added.  Production  of  chemicals,  paper,  glass  and 
ceramics  for  example  has  declined  by  over  20% 
since  2021  (see  Graph  A5.1)  (185).  To  provide 
additional 
to 
introduce  an  ‘industrial  electricity  price’  for  the 
years  2026-2028  with  a  target  price  of  5 
cents/kWh  (186),  to  be  financed 
in  particular 
through  the  ‘Special  Climate  and  Transformation 
Fund’.  ‘Carbon  contracts  for  difference’  support 
climate-friendly production processes, for example 
in steel, cement, paper or glass industries (187) (see 
Annex 8 and Annex 9). 

the  government  agreed 

relief, 

Businesses’  views  on  corruption  risks  in 
public  procurement  are  below  the  EU 
average.  In  Germany,  51%  of  companies  (EU 
average: 58%)  consider tailor-made  specifications 
for  particular  companies  in  public  procurement 
procedures  and  51%  (EU  average:  51%)  collusive 
bidding  to  be  a  ‘very’  or  ‘fairly  widespread’ 
practice.  Among  companies  that  have  experience 
of  and  have  participated  in  a  public  procurement 
procedure,  18% 
that  corruption  has 
prevented them from winning a public tender or a 
public  procurement  contract 
(EU 
average:  25%).  53%  of  businesses  perceive  the 
level of independence of the Federal Cartel Office 
to  be  ‘very’  or  ‘fairly  good’  when  it  is  reviewing 
public procurement cases (EU average: 59%) (183). 

in  practice 

think 

procurement 

A  fragmented  e-procurement  landscape  and 
data  quality  issues  highlight  the  need  for 
interoperable  systems,  common  standards 
and 
stronger  data  governance.  Given 
Germany’s  decentralised  e-procurement  service, 
with  at  least  21  or  more  different  separate 
procurement  services 
in  operation,  economic 
operators  must  use  several  systems  to  access  all 
creating 
public 
complexity  and  barriers  to  participation.  This 
underlines the need for introducing interoperability 
and common standards.  The once-only principle is 
only  partially  implemented  at  national  level,  and 
buyers  across  the  EU  still  lack  digital  access  to 
relevant  evidence.  Moreover,  Germany  lacks  a 
dedicated  entity  responsible  for  monitoring  and 
assessing  the  uptake  of  public  procurement.  The 
German  system  would  benefit  from  a  dedicated 
public  procurement  data  collection  and  analysis 

procedures, 

(184) European Court of Auditors, Public Procurement in the EU. 

Less competition for contracts awarded for works, goods and 
services in the 10 years up to 2021, 
2023, https://www.eca.europa.eu/. 

(182) Procurement Office of the Federal Ministry of the Interior, 

(185) Federal Statistical Office, 2025, www.destatis.de/. 

2026, e-Vergabe.  
“Marktplatz Deutschland” is the Federal Government’s central 
project to advance the modernisation of government 
procurement, which is to be launched in 2027.  

(183) European Commission, 2025, Justice Scoreboard,  
Flash Eurobarometer survey 555 on the Perceived 
independence of the national justice systems among 
companies in the EU. 

      Production index as of December 2025: Glass and ceramics 
78.2%, Chemicals 74.0%, Paper 80.3%, Metal 90.5%, 
Mineral products 91.4% (2021 = 100). 

(186) Federal Ministry for Economic Affairs and Energy, 2025, 

https://www.bundeswirtschaftsministerium.de/. 

(187) Federal Ministry for Economic Affairs and Energy, 2025, 
Carbon Contracts for Difference - Klimaschutzverträge 

60 

 
 
 
Graph A5.1: Manufacturing industry production: 
total and selected sector, index (2021=100), 
2015-2024 

Source: Eurostat 

is  facing 

largest 
industry, 

industrial  sector,  the 
Germany’s 
increased 
automotive 
competition.  Output  of  the  German  car  industry 
showed  a  slow  recovery  in  2025,  with  overall 
passenger  car  production  increasing  slightly  to 
around  4.2  million  units,  but  is  still  about  12% 
below  pre-crisis  2019  levels.  The  industry  faces 
strong competitive pressure from China, high costs 
associated  with  the  transition  to  electric  vehicles 
and declining profits and sales in key markets. This 
has  led  to  significant  job  losses  over  the  last 
years.  The  RRP  supported  the  replacement  of  the 
private  vehicle  fleet  by  electric  vehicles.  In  2025, 
2.86 million  new  passenger  cars  were  registered, 
with  battery  electric  vehicles  reaching  a  market 
share  of  about  19.1%  (up  from  13.5%  in  2024) 
(188).  With  the  support  of  the  RRP,  public  electric 
vehicle charging points have further increased. 

in 

Germany  supports  the  transition  towards  a 
net-zero  economy  and  has  made  sound 
progress 
implementing  the  Net-Zero 
Industry  Act.  It  has  successfully  designated  a 
system  of  single  points  of  contact  at  regional 
streamlining 
crucial 
level,  which 
communication 
among 
stakeholders.  Furthermore, 
regions  have 
established  contact  points  to  administer  net-zero 

for 
coordination 
the 

and 

is 

interest 

net-zero 

(189).  Germany  has 

projects, 
and 

strategic 
Bavaria 

four 
strategic  projects 
in 
confirmed 
Schleswig‑Holstein, 
North 
Rhine‑Westphalia  (190).  With  regard  to  net-zero 
acceleration  valleys,  the  country’s 
in 
promoting  net-zero  activities  is  evident,  with  the 
net-zero  valleys  Lausitz  and  Nordwest  Germany 
having  been  formally  designated  and  other  such 
initiatives  in  progress,  which  can  help  attract 
further  strategic  projects  and  investments.  In 
February 2026, Germany launched a EUR 3 billion 
state aid scheme to support strategic investments 
that  add  cleantech manufacturing  capacity  in  line 
with  the  objectives  of  the  Clean  Industrial  Deal 
(191). 

Manufacturing depends heavily on imports of 
raw  materials.  With  39.5%  of  material  inputs 
stemming  from  imports  (EU  average:  22.4%), 
Germany is particularly vulnerable to supply chain 
disruptions (see Table A5.1). Moreover, Germany’s 
industry  strongly  relies  on  critical  raw  materials 
for  the  green  and  digital  transitions,  which  are 
essential for the production of high-tech products, 
including  electric  vehicles,  wind  turbines  and 
electronics.  The  government  encourages 
the 
diversification  of  strategic  value  chains.  A  raw 
materials  fund  was  launched  in  2024  to  support 
projects in the areas of extraction, processing and 
recycling  (192)  and  a  first  project  received  funding 
in  2025  (193),  which  aims  to  extract  and  process 
lithium in Germany for up to 500 000 electric cars 
per year. Recycling may also still offer potential to 
further 
raw 
the  need  for 
reduce 
materials (see Annex 8). 

imported 

(189) Federal Ministry for Economic Affairs and Energy, 2026, Der 

europäische Net Zero Industry Act (NZIA). 

(190) Federal Ministry for Economic Affairs and Energy, 2025,  

A big boost for climate-neutral key-enabling technologies. 

(191) European Commission, 2026, Commission approves €3 

billion German State aid scheme. 

(192) Federal Ministry for Economic Affairs and Energy, 2024, 
Rohstofffonds der Bundesregierung startet | BMWE. 

(188) Kraftfahrt-Bundesamt, 2026, Neuzulassungen von 
Personenkraftwagen (Pkw) im Jahresverlauf 2025. 

(193) Bundesregierung, 2025, Startschuss für erstes Projekt des 

Rohstofffonds. 

61 

7075808590951001051101152015201620172018201920202021202220232024ManufacturingManufacture of wood and of products of wood and cork, except furniture;manufacture of articles of straw and plaiting materialsManufacture of paper and paper productsManufacture of chemicals and chemical productsManufacture of rubber and plastic productsManufacture of other non-metallic mineral productsManufacture of basic metals 
       
 
 
Table A5.1:  Single Market and Industry 

Source: (1) Eurostat, (2) EIB Investment Survey, (3) EIF SME Access to Finance Index, (4) Intrum Payment Report, (5) SAFE survey, 
(6) OECD, (7) data up to 2024: Single Market and Competitiveness Scoreboard, 2025: Commission calculation based on TED data, 
accessible at the Public Procurement Data Space (PPDS) (*) the value represented here under EU average is the median, (8) Single 
Market and Competitiveness Scoreboard, (9) European Commission calculations. 

62 

POLICY AREA20212022202320242025EU-27 average116.0119.7118.5117.6115.9100.015.815.415.314.1-12.63.63.43.73.9-3.9Business environment and simplification35.426.130.246.841.034.00.730.700.520.37-0.430.190.120.140.10-0.1911.713.616.613.715.317.411.813.715.418.114.813.6from private entities in the previous or current quarter---42.644.647.1from public entities in the previous or current quarter---16.912.115.938.342.139.337.637.140.70.0630.0620.0620.0620.0620.0502628283627271087121261.9111.21.511.51.21.41.51.71.174.4471.97079.873.384.62927242626250.08750.15130.19710.15390.14050.146230.829.329.2--32.734.634.141.643.0-25.243.041.941.640.9-22.411.212.214.215.2-12.2AustriaINDICATOR NAMEBusiness environment and investmentProductivity and investmentLabour productivity (GDP per hour worked in PPP terms), % of EU271Business investment (share of GDP)1Public investment (share of GDP)1Impact of regulation on long-term investment, % of firms reporting business regulation as a major obstacle2SME liquidityEIF Access to Finance for SMEs index - loans3EIF Access to Finance for SMEs index - equity3Late paymentsPayment gap - corporates B2B, difference in days between offered and actual payment4Payment gap - public sector, difference in days between offered and actual payment4Share of SMEs experiencing late payments, %5Industry and economic securitySingle Market IntegrationEU trade integration, average(intra-EU imports + intra EU exports)/GDP, %1EEA Services Trade Restrictiveness index6Public procurementSingle bids, % of total contractors7*Direct awards, % of negotiated procedures7*ComplianceTransposition deficit, % of all directives not transposed8Conformity deficit, % of all directives transposed incorrectly8SOLVIT, resolution rate per country, %8Number of pending infringement proceedings8Energy-intensive industriesElectricity prices for non-household consumers1Electrification (electricity as a share of total energy consumption in industry)1Share of energy from renewable sources (renewable energy generation as a share of overall energy consumption)1Critical raw materialsMaterial import dependency, %1Circular material use rate1Operational cleantech manufacturing capacity in 20259 - Solar PV (c: cell, w: wafer, M:module), GW0.01 (c ), 0.475 (m) - Electrolyzer, GW- - Heat pump assembly 0.06 - Battery, GW- 
 
     
 
ANNEX 6: SAVINGS, INVESTMENT AND ACCESS TO FINANCE 

Table A6.1:  Savings and Investment Union summary diagnostics 

Source: ECB (pensions), Eurostat (households' financial wealth), FISMA CMU dashboard (VC and PE), national sources (capital 
taxation). 

across 

behaviour 

Germany’s economic and financial landscape 
is characterised by conservative and low-risk 
investment 
firms, 
households  and  institutional  investors.  This 
has  supported  stability,  but 
limited  growth. 
Although German financial wealth and institutional 
assets are large in aggregate, risk-taking remains 
concentrated  among  a  small  subset  of  firms  and 
households. Ongoing reforms aim to rebalance the 
financial  system  towards  greater  use  of  capital-
based  financing  and  funded  pensions,  in  line  with 
the CSR  2025  on  improving  access  to  finance  for 
start-ups  and  scale-ups,  but  progress  remains 
modest  so  far.  In  particular,  in  2025,  Germany 
implementation  of  the  CSR  on 
stepped  up 
improving  access  to  finance  for  start-ups  and 
scale-ups  by  expanding  and  operationalising  key 
investment  vehicles  to  mobilise 
public-private 
for 
additional  venture  and  growth  capital 
(i) 
innovative 
the 
Wachstumsfonds 
(including 
Wachstumsfonds II); (ii) Deutschlandfonds; and (iii) 
the Zukunftsfonds. 

in 
Deutschland 

particular: 

firms, 

Business landscape and company 
funding 

The  German  Mittelstand  is  the  structural 
backbone of the national economy. Germany’s 
business  landscape  is  characterised  by  a  large 
base  of  small  and  medium-sized  enterprises 
(SMEs),  the  so-called  Mittelstand,  which  make  up 
99.6% of all companies and employ 58.4% of the 

63 

workforce (194). Despite their large number, a sharp 
divide exists in their economic output: while SMEs 
generate  49.4%  of  total  value  added,  a  small 
group of large enterprises (0.4% of firms) account 
for 50.6% of the German economy's value added 
(see  Annex  5  for  more  details).  This  business 
structure  has  concrete 
the 
corporate  sector’s  demand  for  funding,  which  are 
discussed in this annex. 

implications  for 

German  companies prioritise internal  capital 
use  over  external  financing.  In  aggregate,  the 
total  assets  of  German  NFCs  were  equivalent  to 
212.7%  of  GDP  in  2024,  below  the  average  EU 
level of 238.4%. The funding mix of German NFCs 
presents some marked differences compared with 
the EU average, largely reflecting the specific legal 
structure  of  the  German  corporate  sector.  In 
particular, ‘other equity’ accounts for 38% of total 
NFC funding in Germany, compared with only 21% 
in  the  EU  on  average.  This  ‘other  equity’ category 
mainly  covers  equity  held  in  quasi-corporations 
(such as GmbH&CoKG), which are highly prevalent 
within the German Mittelstand. It further highlights 
the  strong  reliance  of  German  firms  on  retained 
earnings  and  non-market  equity  financing.  At  the 
same time, there are several large, globally active 
German  corporations  with  shares  listed  on  stock 
markets  and  a  substantial  share  of  revenues 
generated abroad. This is reflected in the fact that 
listed  shares  play  a  somewhat  larger  role  in 
Germany,  accounting  for  22%  of  total  NFC 
funding, compared with 19% on average in the EU. 
By contrast, loans account for a very similar share 
of  NFC  funding  in  Germany  and  the  EU  (around 

(194) 2025 SME Country fact sheet, Germany. 

GermanyMain featuresRelative EU positioningAssets at 17.2% of GDP (32.3% in the EU)10-year real return of 0.6 (1.4% in the EU)Medium level pension assets yielding a low real return.EUR 113,035 per capita (EUR 85,098 in the EU)o/w 9.0% in listed shares and bonds (7.6% in the EU)o/w 13.6% in investment funds (11.0% in the EU)o/w 13.4% in life insurance (13.4% in the EU)o/w 13.5% in  pension claims (13.6% in the EU)A relatively well-diversified portfolio, though overinvested in bank deposits.VC at 0.069% of GDP (0.064% in the EU)PE at 0.343% of GDP (0.487% in the EU)Modest venture capital and private equity investments.26.375 %  tax on capital gains and €1,000 tax-free per person per year via a Freistellungsauftrag,No preferential tax treatment for equity investments, average rates of capital taxation. No savings and investment account.1-34-1011-1718-2425-27Colours indicate the country's relative ranking based on five groups, ranging from the three best to the three worst performers. The relative ranking as regards an SIU diagnostic topic derives from a consistent cross-country comparison, the starting point of which is the average of the underlying main features.TopicAssets-backed pension schemesHouseholds' financial assetsVenture capital (VC)Private equity (PE)Capital taxation 
 
 
 
 
 
 
  
 
27%  of  total  funding  in  both  cases),  underlining 
the  continued  importance  of  bank  intermediation 
across  Europe. 
Finally,  market-based  debt 
financing  remains  considerably  less  developed  in 
Germany, with corporate bonds accounting for only 
3%  of  total  NFC  funding,  compared  with  nearly 
5%  in  the  EU  on  average.  German  corporations 
also have pension liabilities on their balance sheet 
equivalent to 8.1% of GDP in 2024.  

Graph A6.1: Composition of non-financial 
corporations' funding 

Investment  funds,  especially  real  estate 
funds,  play  an  important  role.  Germany  is  the 
third  largest  domicile  for  investment  funds  in  the 
EU,  with  EUR 4.5 trillion  under  management, 
roughly equivalent to Germany’s GDP. In particular, 
Germany is the leading European domicile for real 
estate  funds.  German insurance  corporations  hold 
assets  worth  the  equivalent  of  55.5%  of  GDP. 
Pension  funds  of  different  types  (Pensionsfonds 
Pensionskassen, 
berufsständische 
Versorgungswerke)  remain  relatively modest,  with 
total  assets  equivalent  to  17.2%  of  GDP  at  end-
2024 (195). 

Graph A6.2: Capital markets and financial 
intermediaries 

Source: Eurostat, FISMA E2 calculations, end-2024 

Size and structure of the financial 
sector 

Germany’s  financial  sector  is  characterised 
by  a  large  number  of  small  banks  with 
relatively high operational costs. In December 
2025,  German  banks  held  assets  worth 
EUR 10.8 trillion,  equivalent  to  238.7%  of  GDP, 
and slightly below the EU average of 245.3% (see 
Graph  A.6.2)  The  German  banking  sector 
is 
strongly  decentralised,  reflecting  the  presence  of 
many small and locally oriented cooperative banks 
and savings banks. The top five banks in Germany 
accounted  for  only  35%  of  total  German  banking 
assets  in  2024.  Banks  are  organised  along  three 
so-called 
banks, 
namely 
cooperative banks and commercial banks, each of 
which  has  a  different  ownership  structure  and 
legal  mandates.  Mergers  of  banks  across  pillars 
remain  difficult  and  rare  despite  operational 
inefficiencies 
the  banking  sector.  These 
operational  inefficiencies  are  also  reflected  in 
relatively  high  costs:  the  cost-to-income  ratio  of 
German  banks  stood  at  58.3%  in  March  2025 
compared with an EU average of 54%. 

savings 

pillars, 

in 

(1) MFIs refers to monetary financial institutions 
Source: ECB, AMECO, FISMA E2 calculations, end-2024 

to  56.4%  of  GDP 

The  size  of  the  domestic  capital  market  is 
relatively  modest 
comparison  with 
in 
European  peers.  The  market  capitalisation  of 
listed  equity  issued  by  German  corporations  was 
equivalent 
in  Q2-2025, 
significantly  lower  than  in  some  of  the  most 
developed  capital  markets  in  the  EU.  German 
equity  accounts  for  only  19%  of  all  outstanding 
shares issued in the EU, which pales in comparison 
with  Germany’s  24%  share  of  the  EU  economy. 
This is primarily because many of Germany’s most 
successful  companies  are  privately  held  and  not 
listed  stock  exchanges.  Moreover,  significant 

(195) These figures do not include all assets underpinning future 
pension claims. In particular it omits direct claims, direct 
insurance and support funds, with a total value of about 
EUR 470 billion (11% of GDP), and which are three of the 
five different implementation alternatives of occupational 
pension provision in Germany. Nor does it include any third 
pillar schemes. 

64 

0100200300DEEU% of GDPInsurance, pensions and standardised guaranteesOther equityUnlisted sharesListed sharesBondsTrade credit and advancesLoansNon-financial corporationsFinancial corporationsNon-financial corporationsMFIsInsurance  and pension fundsOther financialsGovernmentMFIsPension fundsInsurance corporationsInvestment funds050100150200250300   Listed equity               Bonds                        Assets by sector% of GDP 
      
     
 
in  Germany, 

sectors 
like  automotive  and 
chemicals,  often  trade  at  lower  price-to-earnings 
ratios than high-growth tech or high-margin luxury 
sectors. The outstanding volume of debt securities 
issued by German issuers reached 95% of GDP at 
end-2024.  The  public  sector  accounts  for  the 
largest  share  (52%  of  GDP),  followed  by  debt 
issued  by  the  financial  sector  (38%  of  GDP)  and 
NFCs  (6%  of  GDP).  The  structure  of  German  debt 
securities  has  been  relatively  stable  in  recent 
years, with only a modest increase in the share of 
corporate bonds. 

The  number  of  German-listed  companies  on 
German  stock  exchanges  has  steadily 
declined  over  recent  years.  Despite  a  recent 
minor  surge  with  four  initial  public  offerings  in 
2024 and three in 2025, the number of domestic 
companies  listed  on  German  exchanges  stood  at 
539  at  end-2025,  and  thus  well  below  the  662 
listed  companies  recorded  in  2015.  Small  and 
medium-sized  German  enterprises  rarely  use 
capital  markets  for  financing.  Moreover,  some 
well-known  German  companies,  have  recently 
chosen to list abroad, for example in New York.  

Germany  hosts  seven  stock  exchanges,  the 
largest  of  which  is  the  Frankfurt  Stock 
Exchange,  owned  by  Deutsche  Börse  Group. 
Although Frankfurt maintains a  traditional  trading 
floor,  approximately  90%  of  share  trading  in 
Germany  happens  on  Xetra,  Deutsche  Börse’s 
electronic trading platform.  Deutsche  Börse is  the 
second-largest  stock  exchange  group  in  the  EU 
listed  market 
with  around  EUR 2.3 trillion in 
capitalisation (196), 
Euronext’s 
trailing 
EUR 6.6 trillion,  and  has  remained  independent 
despite a trend for consolidation among European 
exchanges.  Many 
foreign  companies  choose 
Deutsche  Börse  as  a  secondary  listing  venue  for 
their shares. Including those secondary listings, the 
total  number  of  all  companies  listed  on  German 
exchanges  reached  12 711  at  end-2025 (197). 
Deutsche  Börse  also  owns  Eurex,  a 
leading 
derivatives  marketplace.  Outside  Frankfurt,  six 
regional stock exchanges support smaller and local 
companies.  The  largest  regional  exchange  is  the 
Stuttgart Stock Exchange, known for its electronic 
trading platform Euwax and for having the largest 
trading  volume  in  bonds,  especially  those  issued 
by  SMEs.  Börse  Stuttgart  also  owns  the  Nordic 
Growth  Market, 
second-largest 
exchange, BX Swiss in Bern, and the OTC platform 
Cats,  making  it  the  sixth-largest  stock  exchange 
group in Europe. Other regional German exchanges 
include  those  in  Berlin  and  Munich,  and  the 
in 
exchanges  operated  by  BÖAG  Börse  AG 
Düsseldorf, Hamburg, and Hannover. 

Sweden’s 

(196) FESE monthly statistics, March 2026. 

(197) CEIC. 

65 

Households’ participation in capital 
markets 

hold 

households 

instruments. 

German 
substantial 
financial  wealth  and  show  a  preference  for 
low-risk 
In  2024,  German 
households  held  financial  assets  of  around 
EUR 112 000  per  capita  on  average,  compared 
with  around  EUR 85 000  in  the  EU  on  average.  In 
GDP  terms,  the  financial  assets  of  German 
households  are  equivalent  to  267%  of  GDP, 
broadly  comparable  to  the  EU  average  of  262%. 
When comparing the relative composition of these 
portfolios  with  EU  peers,  German  households 
differentiate  themselves  through  a  significantly 
higher  concentration  in  currency  and  deposits, 
alongside  a  greater  preference  for  investment 
funds and listed shares than the EU average. This 
is  reflected  in  portfolios  that  are  more  oriented 
toward  liquid  and  publicly  traded  assets  than 
private  equity  compared  with  European  peers. 
Germany  currently  lacks  a  dedicated  savings  and 
investment  account  with  a 
tax 
treatment.  The  rise  of  online  broker  accounts  is 
expanding  retail  access  to  capital  markets  and 
creating 
for 
companies,  potentially  boosting  investment  and 
economic  growth.  At  the  same  time,  the  rise  of 
online broker accounts introduces new risks in the 
digital  relationship  between  these  ‘neo-brokers’ 
and  their  customers.  In  2025,  the  Consumer 
Arbitration  Office  of  BaFin,  Germany’s  Federal 
Financial  Supervisory  Authority,  received  35% 
more  complaints  than  the  previous  year,  mostly 
related to securities transactions, largely involving 
reflected 
neo-brokers. 
challenges  such  as  order  execution,  transfer 
delays, and issues with tax reporting.  

opportunities 

complaints 

favourable 

financing 

These 

new 

 
 
Graph A6.3: Composition of households' financial 
assets 

Source: Eurostat and FISMA E2 calculations., end-2024 

and 

strong 

uneven 

relatively 

international 
Despite 
performance,  financial  literacy  in  Germany 
remains 
insufficiently 
coordinated. Germany is among the few Member 
States  that  does  not  have  a  comprehensive 
national strategy for financial literacy in place. The 
federal  government  formally  launched  work  on 
their strategy in March 2023 however, progress on 
the  strategy  seems  to  have  stalled.  Despite  not 
having  a  strategy  Germany  performs  relatively 
well  in  international  comparisons,  including  the 
OECD/INFE  survey  (2023),  the  lack  of  recent 
comprehensive data on the level  and coverage of 
financial  education  makes  it  difficult  to  assess 
developments over time. At the same time, various 
recent  indicators  point  to  weaknesses  in  basic 
financial  literacy  among  parts  of  the  population. 
For  instance,  according  to  a  private  source (198), 
over-indebtedness increased again in 2025 for the 
first time since 2018, reaching around 5.67 million 
cases  (8.16%  of  the  population).  And  recent 
evidence  from  the  Deutsche  Bundesbank (199) 
further highlights disparities in financial outcomes: 
while  wealthier  households  benefit  from  positive 
returns driven by capital market investments, less 

real 

tend 

to  hold 

returns.  Moreover, 

insurance  products,  resulting 

low-yield 
wealthy  households 
in 
deposits  and 
financial 
negative 
education 
remain 
fragmented,  with  significant  overlaps  in  target 
groups  and  content,  limited  coordination  among 
providers, and no comprehensive national strategy 
(200). 

in  Germany 

initiatives 

The banking sector: resilience and 
financing of the economy 

(see  Table  A6.2), 

German  banks  face  a  profitability  challenge 
although they have solid capital and liquidity 
metrics and are thus not constrained in their 
role of funding the economy. German banks are 
well capitalised, with capital ratios close to the EU 
improving  overall 
average 
resilience in the banking system. Although German 
banks have been able to improve their profitability 
in  recent  years,  largely  thanks  to  higher  interest 
rates  and  lending  margins,  they  remain  less 
profitable  overall  than  banks  in  other  European 
countries.  This  lower  profitability  reflects  high 
costs, high staffing levels and explicit mandates in 
parts  of  the  banking  system  that  prioritise 
stakeholder welfare over shareholder value. Return 
on  equity  rose  to  5.7%  in  2023  and  7.1%  in  the 
first  half  of  2025,  but  it  remained  far  below  the 
EU average of 9.8%. MREL (minimum requirement 
for  own  funds  and  eligible  liabilities)  and  the 
combined buffer requirement in addition to MREL, 
comfortably  exceed  all  regulatory  requirements. 
Both liquidity and asset quality metrics (see Table 
A6.2)  are  very  strong,  and  all  major  domestic 
banks  have  navigated  the  EU-wide  stress  tests 
effectively.  However,  the  banks’  asset  quality 
outlook  is  subject  to  increased  uncertainty  due to 
the  current  conflict  in  the  Middle  East  and  its 
impact on energy prices and economic growth. 

Corporate credit  growth  has  been  volatile in 
the past few years. After stagnating for several 
years,  credit  demand  for  new  corporate  loans 
started to pick up again in 2024 and accelerated in 
2025, with credit growing by 4.8% year-on-year in 

(198) https://www.creditreform.de/aktuelles-wissen/schuldneratlas.  

(200) «Finanzbildungsangebote in Deutschland: 

(199)https://www.bundesbank.de/de/presse/pressenotizen/geldver
moegensbildung-und-aussenfinanzierung-in-deutschland-
im-dritten-quartal-2025-936614.  

Bestandsaufnahme, kritische Würdigung und Perspektiven für 
die nationale Strategieentwicklung Zeitschrift für 
ökonomische Bildung». Heft Nr. 13/2024, S. 238-335. 

66 

050100150200250020406080100120DEEUDEEUper capita (000 EUR) (lhs)% of GDP (rhs)Other equityUnlisted sharesListed sharesBondsInvestment fundsInsurance and pension fundsCurrency and depositsHH Debt (liability) 
       
 
 
Q3 2025.  Credit  demand  was  widespread  across 
both  large  and  small  firms  in  2024.  This  credit 
recovery  is  expected  to  continue  as  policy  rates 
have  been  steadily  decreasing,  and  banks  have 
been  easing  their  lending  standards.  Sectors  with 
particularly  strong  growth  in  demand  for  credit 
include 
and 
manufacturing,  all  of  which  are  sectors  that 
benefit from robust public infrastructure spending. 
Lending  to  households  grew  relatively  strongly  in 
both 2024 and Q1 025, with year-on-year growth 
of  5.2%  in  Q3 2025,  driven  by  mortgage  credit. 
Overall,  household  credit  is  poised  for  more 
gradual growth in the coming years. 

construction, 

estate, 

real 

Role of non-bank financial 
intermediaries 

liquid  assets.  Although 

Although  Germany’s  insurance  sector  has 
substantial  assets  and  some  risk-bearing 
capacity, its overall impact on deepening the 
country’s  capital  market  remains  modest. 
Germany’s  insurance  sector  is  one  of  Europe's 
largest, with total assets of insurers equivalent to 
53.6% of GDP in Q2 2025. As investors, insurance 
companies  typically  stick  to  safe,  fixed-income 
securities  and 
the 
performance  of  these  assets  remains  modest, 
insurers have maintained a stable solvency profile. 
Based  on  data  from  EIOPA’s  Insurance  Statistics 
for  Q2  2025,  German  insurers’  asset  exposure  is 
clearly  tilted  towards  market-based  instruments 
investment  vehicles.  Collective 
and  diversified 
investment  undertakings  represent  the  largest 
asset 
around 
EUR 824 billion,  underscoring  the  importance  of 
fund-based  intermediation  in  insurers’  portfolios. 
Direct  equity  holdings  are  also  significant  at 
roughly  EUR 480 billion,  pointing  to  significant 
risk-bearing capacity. Fixed income remains a core 
component,  with  corporate  bonds  amounting  to 
around  EUR 351 billion  and  government  bonds 
about EUR 305 billion, reflecting the continued role 
of  bonds  for  income  generation  and  capital 
preservation.  In  addition,  insurers  hold  sizeable 
positions  in  mortgages  and  loans  of  around 
EUR 112 billion and maintain cash and deposits of 
approximately 
liquidity 
EUR 82 billion 
management. Property exposures stand at around 
EUR 30 billion,  while 
structured  notes  and 
collateralised  securities  together  remain  relatively 
small.  Overall,  the  asset  mix  suggests  a  balance 

class,  with 

exposures 

for 

of 

between yield seeking through equities and funds, 
and prudence through bonds and loans, consistent 
with  the  long-term  liability  profile  of  German 
insurers. 

and 

split  between 

IORPs  managed 

for  occupational 

investment  strategies  of  German 
The 
retirement 
institutions 
provision 
(IORPs)  continue  to  prioritise 
capital  preservation  over  greater  returns. 
German 
total  assets  of 
EUR 254.8 billion 
in  September  2024,  broadly 
stable compared with pre-pandemic levels after a 
dip  observed  in  2022.  Investments  accounted  for 
around  EUR 239 billion,  with  collective  investment 
undertakings  representing  by  far  the 
largest 
exposure at EUR 149 billion, or about 58% of total 
to 
assets.  Direct  bond  holdings  amounted 
EUR 79 billion, equivalent to roughly  31% of total 
corporate  bonds  at 
assets, 
EUR 52 billion 
at 
EUR 25 billion.  Direct  equity  exposure  remained 
limited,  with  total  equities  at  just  EUR 4 billion, 
corresponding to around 1.4% of assets, of which 
listed 
than 
accounted 
EUR 0.1 billion.  Direct  real  estate  exposures  stood 
at  EUR 6 billion,  or  around  3%  of  assets,  while 
alternative  funds  represented  EUR 11 billion,  or 
around  4%.  Cash  and  cash  equivalents  remained 
marginal at below 1% of assets. Overall, the data 
point  to  a  strongly  risk-averse  investment  profile, 
with  German  IORPs  relying  predominantly  on 
fund-based 
fixed-income 
structures  and  maintaining  very  limited  direct 
exposure  to  equities  and  alternative  assets.  This 
partially  explains  the  rather  meagre  investment 
return  of  pension  providers  with  a  10-year  real 
return average of just 0.6%. 

government 

instruments 

equities 

bonds 

less 

and 

for 

Pension provision in Germany relies on a mix 
of  public,  occupational  and  private  schemes 
with  a  moderate  degree  of  capital  backing. 
The backbone of Germany’s pension system is the 
public  pension  insurance  scheme,  which  is  a  pay-
as-you-go  scheme.  Participation  in  this  scheme  is 
obligatory for most employees in Germany. Certain 
professions  are  covered  by  their  own  pillar  1 
schemes.  There  are  91  of  these  schemes  in 
Germany  with  about  1.1 million  members  in  total 
compared  with  a  working  population  of  about 
47.4 m.  These  pillar  1  schemes  are  generally 
capital  backed  and  held  total  assets  of  about 
EUR 280.2 billion  in  2023  (201).  They  are  not 

(201) Deutscher Bundestag, Drucksache 21/723, June 2025. 

67 

 
 
in 

funds 

valued 

insured 

total)  were 

supervised  by  BaFin, 
the  Federal  Financial 
Supervisory  Authority,  but  by  relevant  authorities 
of  the  Länder.  Cases  of  significant  asset  losses 
have  raised  questions  about  the  professionalism 
of  supervision  and  the  management  of  the 
schemes.  In addition to the pillar 1 schemes, half 
(51%)  of  employees  liable  to  social  insurance 
contributions  benefit  from  a  workplace  pension 
arranged  by  their  employer.  These  take  various 
forms:  direct  claims,  direct  insurance,  support 
funds, pension funds type 1 (Pensionskassen) and 
pension  funds  type  2  (Pensionsfonds).  The  assets 
of pension funds type 1 and pension funds type 2 
(159 
at 
EUR 321.6 billion  in  2024,  equivalent  to  7.4%  of 
GDP.  However,  the  biggest  share  of  occupational 
pension  schemes  is  accounted  for  by  so-called 
direct claims, that is direct pension liabilities owed 
relevant  companies.  These  pension 
by 
the 
liabilities  are 
in  the  event  that  the 
sponsoring  company  falls  insolvent.  Some  of  the 
companies  with  such  schemes,  especially  large 
corporations,  have  removed  them  from  their 
balance sheets via contractual trust arrangements 
which  are managed  separately  and  independently 
from the companies. As the population ages, these 
funded  systems,  which  in  the  past  10  years 
offered an annual real return of 0.6% on average, 
in 
may  play  an 
supplementing  statutory  provisions  in  the  future. 
Further  promoting  supplementary  pension  pillars 
may  be  beneficial  to  the  wider  German  economy 
via  additional  investment,  provided  it  is  designed 
to  strengthen  capital  markets  without  further 
increasing  the  already  high  cash  saving  rate.  The 
more  widespread  adoption  of  funded  pension 
schemes  across  the  population  could  reduce 
precautionary  saving,  as  households  would  gain 
confidence that their retirement needs are secured 
through  professionally  managed,  diversified 
capital  investments  rather  than  relying  primarily 
on  low-yield  bank  deposits.  Moreover,  a  larger 
funded  second  pillar  in  Germany  would  create 
institutional  demand  for  equities  and  long‑term 
bond  financing,  providing  stable  capital  for 
corporate  investment.  The  recent  Second  Act 
Strengthening  Company  Pensions  (Betriebsrenten-
stärkungsgesetz II), in force since 1 January 2026, 
is  a  key  reform  that  allows  more  employees  to 
benefit from an occupational pension, in particular 
by:  (i)  promoting  collective  defined  contribution 
introducing  automatic  enrolment 
schemes;  (ii) 
options; 
incentives  and 
subsidies;  and  (iv)  reducing  employers’  liability 
risks.  Almost  all  occupational  pension  schemes  in 

increasingly  critical 

(iii)  enhancing 

role 

tax 

Germany  are  set  up  as  defined  benefit  (DB) 
schemes,  entailing  clearly  determined  liabilities 
decades in advance. Therefore, the investments of 
these  DB  pension  schemes  are 
relatively 
conservative  with 
limited  equity  exposures. 
Furthermore,  pension  provision  is  complemented 
by a range of pillar 3 schemes that individuals can 
take out at their own discretion, mainly in the form 
of insurance contracts and fund investment plans. 
In March 2026, the Bundestag paved the way for a 
fundamental  overhaul  of  Germany’s  third  pillar 
pensions.  The  Riester-Rente,  which  has  been  the 
in  Germany’s  pillar 3  private 
central  vehicle 
pension system, will be reformed effective for new 
contracts by January 2027, and replaced by a new 
system called Altersvorsorgedepot. Under the new 
regime, individuals can choose from a broad range 
of  investment  products  including  funds.  Crucially, 
the  mandatory  100%  capital  guarantee 
is 
removed,  allowing  savers  to  benefit  from  higher 
long-term  returns  in  the  stock  market,  albeit  with 
higher personal risk. Individual contributions will be 
topped up by the government The new scheme has 
the potential to substantially increase participation 
in  financial  markets  for  broad  swathes  of  the 
population.  

Venture capital ecosystem 

The  German  venture  capital  (VC)  ecosystem 
suffers  from  a  lack  of  domestic  sources  of 
financing,  especially  for  scale-up  financing. 
As  in  other  European  countries,  the  German  VC 
is  quite  small,  with  annual  start-up 
market 
financing  by  VCs  equivalent  to  roughly  0.07%  of 
GDP  (202),  close  to  the  EU  average  of  0.06%  (see 
Annex  4  for  more  details).  Deal  volume  in  2025 
from 
amounted 
EUR 7.5 billion  in  2024.  As  in  other  European 
countries,  companies  in  the  growth  or  scale-up 
stages struggle to obtain sufficient financing (203). 
Given  a  shortage  of  domestic  sources,  57%  of 

to  EUR 7.2 billion,  declining 

(202) Average of the years 2022-2024, OECD. 

(203) See Bundesfinanzministerium 2026: Kukies, J. and Noyer, C., 
Financing innovative ventures in Europe. Recommendations 
to close the scaleup financing gap, deepen the Savings and 
Investments Union and strengthen Europe’s competitiveness, 
2026. 

68 

 
 
is 

often 

several 

programmes, 

targeting  German 

up  to  EUR  30  billion 
in  public  funds  and 
guarantees  to  catalyse  EUR  130  billion  in  total 
investment.  The  Germany  Fund  incorporates  the 
German  Future  Fund  (GFF,  Zukunftsfonds)  which 
provides  financing  for  start-ups,  especially  for 
their  capital-intensive  growth  phase.  Within  this 
framework,  KfW-Capital,  a  specialised  subsidiary 
of the government-owned development bank KfW, 
manages 
in 
cooperation  with  the  European  Investment  Fund. 
Additional  funding  comes  from  the  European 
Recovery  Programme  (ERP)  Special  Fund,  which 
supports funds-of-funds programmes managed by 
KfW  Capital  and  the  European  Investment  Fund 
acting as an anchor investor. One such programme 
is  the  ERP-VC  Fund  which  invests  directly  in  VC 
start-ups.  While 
funds 
technology-agnostic,  the  ERP-VC  Fund  prioritises 
information  and  communication  technology,  life 
sciences,  and  industrial  technology,  typically  co-
investing  alongside  private  investors.  Another  key 
the  High-Tech  Gründerfonds, 
instrument 
investor. 
Germany’s  most  active  seed-stage 
Operating  as  a  public-private  partnership, 
it 
provides  early  financing  (typically  around  EUR 
1 million)  for  high-potential  tech  start-ups  with  a 
focus  on 
life  sciences, 
climate  technology,  and  digital  technology.  The 
Growth  Fund  Germany  (Wachstumsfonds),  part  of 
the  GFF,  completed  fundraising  in  2023  at  a 
volume of roughly EUR 1 billion, ranking it among 
Europe's  largest  VC  funds-of-funds.  It  aims  to 
funds, 
mobilise 
insurers)  and  targets  the  growth  stage  of  young 
companies  (series  B  and  beyond).  Its  goal  is  to 
reduce  reliance  on  US  or  Asian  investors  for 
scaling  German  ‘unicorns’.  Its  successor  Growth 
Fund II (Wachstumsfonds II), began fundraising in 
2026.  To 
the 
further  bolster  deep 
introduced  the  Scale-up 
government  recently 
Direct and FOAK (First-of-a-Kind) modules as part 
of 
the  Deutschlandfonds.  These  efforts  are 
reinforced by the WIN Initiative, a 2024 pact with 
the private financial sector aiming to mobilise EUR 
12  billion  in  additional  growth  capital  by  2030. 
Finally,  direct  incentives  like  the  INVEST-Grant 
remain  crucial,  providing  business  angels  with  a 
20% tax-free acquisition grant and an exit grant to 
offset capital gains taxes. 

industrial  technology, 

institutional  capital 

(pension 

tech, 

funding  in  the  scale-up  stage  originates  from 
other countries (204).  

the  European 

A range of government programmes supports 
the  VC  system,  but  the  exclusively  private 
players are still small. Public support for the VC 
ecosystem in Germany is characterised by a small 
number  of  programmes      that  invest  in  VC  funds 
on a pari-passu basis. These have been set up by 
the  Federal  Government  under  the  leadership  of 
KfW,  the  government-owned  development  bank, 
and 
Investment  Fund.  The 
programmes  are  designed  to  ‘crowd-in’  private 
investments.  There  are  also  some  small  boutique 
private  funds-of-funds.  In  recent  years,  financing 
opportunities  for  start-ups  in  the  early  or  seed 
stage have improved thanks to a number of public 
sector  initiatives.  Given  a  pronounced  gap  in 
financing for companies in the scale-up stage (i.e. 
companies that are more mature than those in the 
start-up or seed stages), recent government policy 
has shifted to give more attention to the scale-up 
phase. 

complicate 

arrangements 

the 
Tax 
development  of  VC  in  Germany.  VC/PE  funds 
typically operate in a partnership structure and are 
thus  tax-transparent,  aiming  to  avoid  taxation  at 
fund  level.  However,  the  requirements  for  this 
regime  are  quite  stringent  in  Germany.  Therefore, 
since  VC/PE  funds  actively  support  or  intervene  in 
the  management  of  their  investment  companies, 
local  tax  authorities  may  classify  their  activity  as 
“commercial”  (Gewerbliche  Infektion).  This  could 
render a fund’s entire income subject to Trade Tax, 
creating a tax burden that cannot be recovered by 
tax-exempt  investors  such  as  pension  funds  or 
charitable organisations. This risk persists even for 
funds incorporated abroad if the effective place of 
management  is  Germany.  Since  VC  is  a  localised 
business,  requiring  domestic-focused  knowledge, 
this  directly  hampers  the  competitiveness  of  the 
VC/PE ecosystem (see also Annex 4). 

Germany  has  consolidated 
its  start-up 
funding  programmes  into  a  multi-layered 
investment offensive, with the Germany Fund 
(Deutschlandfonds)  serving  as  the  central 
pillar.  The  Germany  Fund  supports  investments 
across the energy and industrial sectors, as well as 
venture  capital,  allowing  for  total  investments  of 

(204) FISMA 2025: Study of barriers to, and drivers of, the scaling-
up of funds investing in innovative and growth companies. 

69 

 
 
Table A6.2:  Financial Sector Indicators 

(1) Annualised data 
EU data for credit growth and pension fund assets (ECB) refer to the euro area average. Private equity and VC, % of GDP is 
calculated as a three-year moving average. Pension assets (OECD) include assets of Pensionskassen and Pensionsfonds, but not 
other types of funds, and thus understate the volume of pension assets. 
Source: ECB, Eurostat, OECD, EIOPA, CMU Dashboard, AMECO 

70 

20182019202020212022202320242025-Q3EUTotal assets of MFIs, % of GDP226.4235.0259.2249.1263.1244.5249.6241.4246.1Common equity Tier 1 ratio15.715.516.015.715.917.017.617.216.8Total capital adequacy ratio18.418.118.818.518.819.820.520.220.2Overall NPL ratio, % of all loans1.41.21.21.11.11.31.51.61.9NPL ratio, loans to NFCs2.72.32.52.22.22.93.63.73.5NPL ratio, loans to HHs1.71.31.41.31.21.31.51.62.1Return on equity ratio12.42.12.24.04.35.75.66.89.6Loans to NFCs, % of GDP26.327.028.828.429.027.727.226.529.3Loans to HHs, % of GDP48.949.653.252.450.648.247.446.643.6NFC credit growth rate, %5.35.13.95.210.91.00.10.22.5HH credit growth rate, %3.94.44.75.14.30.60.81.82.6Stock market capitalisation, % of GDP47.654.156.762.546.648.851.355.869.9Initial public offerings, % of GDP0.200.020.140.580.000.060.10-0.06Market funding ratio53.652.050.751.049.949.549.8-49.7Private equity, % of GDP0.3170.3850.4090.4730.4530.4130.343-0.487Venture capital, % of GDP0.0420.0480.0520.0750.0830.0840.069-0.064Financial literacy, composite index-----48.5--45.5Bonds, % of HHs' financial assets2.22.11.81.61.82.62.6-2.8Listed shares, % of HHs' financial assets4.35.05.56.65.86.26.4-4.8Investment funds, % of HHs' financial assets9.510.310.512.211.612.213.6-11.0Insurance/pension funds, % of HHs' financial assets33.733.832.730.928.227.727.4-27.8Total assets of insurers, % of GDP64.367.672.769.754.954.755.254.053.9Pension assets, bn EUR---326.3293.9311.8321.6-5813.8Pension assets, % of GDP---8.97.47.47.4-32.310y real return average of pension assets, %-----0.90.6-1.4Pension funds assets, ECB (% of GDP)-17.318.819.016.916.817.217.123.0Banking sectorNon-banking sector 
 
  
 
ANNEX 7: EFFECTIVE INSTITUTIONAL FRAMEWORK 

of 

up 

digitalisation 

institutional  framework 

An  effective 
is 
essential  for  competitiveness.  This  requires 
public  trust  built  on  integrity,  quality  legislation, 
regulatory  simplification  and  efficient  services  for 
people and businesses. The 2025 country-specific 
recommendations  call  on  Germany  to  simplify 
regulation,  reduce  administrative  burden  and 
public 
speed 
the 
including  by 
administration, 
geographic coverage of digital public services and 
facilitating  cooperation  between  governmental 
levels.  To  address  these  challenges,  in  2025  the 
comprehensive 
government 
modernisation 
federal 
the 
administration alongside a modernisation strategy 
for  federal–Länder  cooperation.  A  Ministry  for 
Digitalisation  and  State  Modernisation  was 
founded  to  steer  reforms  across  governance 
levels, particularly on digitalising  and modernising 
the public administration. 

the 
improving 

strategy 

adopted 

a 
for 

Public trust 

Graph A7.1: Trust in justice, regional / local 
authorities and in government 

interfaces  are  organised. 

public  administration  as  complex  (48%)  and  slow 
in  delivering  services  (40%)(205),  and  consider  the 
state  overwhelmed  and  lacking  the  capacity  to 
fulfil  its  functions  (73%).(206)  This  points  not  only 
to service delivery problems, but deeper structural 
weaknesses in how administrative responsibilities, 
procedures  and 
In 
contrast,  trust  in  the  judiciary  remains  robust,  at 
70%,  placing  Germany  in  the  top  seven  Member 
States,  a  figure  which  has  stayed  relatively 
unchanged.  Trust  is  highest  in  regional  and  local 
authorities,  at  74%,  above  the  EU  average. 
However,  this  figure  has  been  declining  slightly 
since  2017,  suggesting  that  pressures  linked  to 
administrative  overload,  complex  regulation  and 
limited  implementation  capacity  are  affecting  all 
governance levels.(207) Both people and companies 
express strong confidence in public administration 
protecting their data (68% and 76% respectively). 
However, 33% of businesses report difficulties due 
to  data  protection  rules,  significantly  higher  than 
the  EU  average  of  13%,  positioning  Germany 
highest  in  this  issue(208)  and  showing  fragmented 
implementation  across  all  governance  levels,  with 
18  general  public  data  protection  supervisory 
authorities  (one  federal  and  one  for  each  Land, 
apart from Bavaria which has two).(209) 

Quality of lawmaking 

for 

regulatory 

requirements 

Germany's  strong 
lawmaking  framework 
falters  in  practice.  There  are  comprehensive 
formal 
impact 
assessments  (RIAs)  and  ex  post  evaluations  for 
both primary and subordinate legislation at federal 
level.  However,  RIAs  are  not  systematically 
published. 
(national 
The  Normenkontrollrat 
regulatory  control  council)  repeatedly  identifies 
shortcomings  in  the  problem  definition,  baseline 

(205) European Commission, 2026, Flash Eurobarometer surveys 
567 and 568 on satisfaction with administrative services. 

(206) Dbb Beamtenbund und Tarifunion, 2025, Handlungsfähigkeit 

des Staates: Geyer fordert Reformen | dbb.de. 

(207) Deutsche Städtetag, 2025, Kommunalhaushalte kollabieren 

– bislang undenkbare Verschuldungsspirale droht | 
Staedtetag.de. 

(208) European Commission, 2026, Flash Eurobarometer surveys 
567 and 568 on satisfaction with administrative services. 

(209) OECD, 2025, OECD Economic Surveys: Germany 2025, OECD 
Publishing, Paris, OECD Economic Surveys: Germany 2025 
(EN). 

EU-27 since 2019; EU-28 before 
Source: European Commission, Standard Eurobarometer 
surveys 

Public  trust  in  Germany’s  institutions  varies 
significantly (Graph A7.1). There is an erosion of 
trust  in  the  federal  government,  with  a  sharp 
decline from 61% to 38% (EU:  36%), the second-
largest  decline  in  the  EU.  In  addition,  people  view 

71 

00.10.20.30.40.50.60.70.80.9AutumnSpringAutumnSpringAutumnSpringWinterSummerWinterSpringWinterSummerAutumnSpringAutumnSpringAutumnSpring202520242023202220212020201920182017Justice,  legal system EU-27Justice,  legal system DERegional or local public authorities EU-27Regional or local public authorities DEGovernment  EU-27Government  DE 
 
      
 
 
 
Table A7.1:  Germany. Selected indicators on better regulation practices 

(1) The indicators refer to primary legislation. 
Source: OECD (2025), Regulatory Policy Outlook 2025 [https://doi.org/10.1787/56b60e39-en] and Better Regulation across the 
European Union 2025  

setting  and  impact  anticipation  of  legislation. 
Many  legislative  proposals  fail  to  adequately 
assess counterfactual (’do-nothing’) scenarios and 
only partially quantify administrative burdens and 
compliance costs. Although ex post evaluations are 
formally  intended  to  inform  new  legislation,  they 
are  not  consistently  applied,  which 
reduces 
learning  effects  and  allows  complexity  to  build 
over  time(210).  These  weaknesses,  combined  with 
risk  avoidance,  lack  of  continuous  monitoring  and 
persistent  coordination  failures  across  ministries 
and  administrative  layers  undermine  delivery  and 
contribute 
implementation 
complex 
arrangements and higher administrative burdens. 

to 

Stakeholder  engagement  is  formally  well 
developed but measures having an impact on 
Länder  and  municipalities  are  not  always 
considered(211).  Open  public  consultations  are 
also  rare  and  stakeholders,  including  from  the 
business sector, criticise short consultation periods 
in  practice(212).  Also,  there  is  no  unified  publicly 
identify 
accessible 
implementation  risks  and  administrative  burdens 
at  an  early  stage(213).  The  Digitalcheck  (digital-
ready legislation) is now obligatory and applied to 

platform 

help 

to 

federal 

regulatory  proposals, 
over  80%  of 
improving transparency in the legislative workflow. 
However, it is often perceived as a checklist rather 
than  an  analytical  steering  tool(214).  In  addition, 
Praxis-Checks  (reality  checks)  are 
increasingly 
used  to  test  the  impact  of  implementation,  with 
around  20  conducted  between  July  2024  and 
February 2025, though their scale remains limited 
relative to the volume of legislation(215). 

to 

include 

expanding 

the  mandate 

of 
reviewing 

Forthcoming  reforms  intend  to  strengthen 
the 
regulatory  quality  oversight  and 
lawmaking  process  more  broadly.  These 
the 
include 
Normenkontrollrat 
the 
bureaucratic  burden  of  subordinate  legislation(216) 
and  strengthening  the 
’Zentrum  für  Legistik’ 
(centre  for  lawmaking)  as  a  hub  for  consolidated 
tools  and  methodological  support.  Their  success 
will  depend  on  consistent  application  across 
ministries, sufficient analytical capacity and strong 
central 
deliver  measurable 
improvements in regulatory quality.(217) 

steering 

to 

(214) NKR, 2025, NKR - Annual Reports. 

(210) NKR - Presse & Aktuelles - Einfach, schnell, wirksam. Den 

Staat neu gestalten. 

(211) NKR, 2025, NKR - Annual Reports. 

(212) European Commission, 2025, Rule of Law Report, p. 16. 

(213) OECD, 2025, Better Regulation Practices across the European 

Union 2025, https://doi.org/10.1787/6f007516-en. 

(215) NKR, 2025, NKR - Presse & Aktuelles - Einfach, schnell, 

wirksam. Den Staat neu gestalten. 

(216) Federal Ministry for Economic Affairs and Energy, 2025, 

German Medium-Term Fiscal-Structural Plan 2025-2029. 

(217) Federal Ministry for Digital Transformation and Government 
Modernisation, 2025, Modernization Agenda for a Fast 
German. 

72 

Tools for smart legislation: Share of possible impacts assessed for all primary laws when developing legislation 1Regulators are required to identify and quantify the benefits of a new primary law0Regulators are required to identify and assess the impacts of alternative non-regulatory options1Tools for effective implementation: when developing laws, regulators are required to:Assess the level of compliance0Identify and assess potential enforcement mechanisms1Specify the methodology of measuring progress in achieving the law's goals1Oversight of better regulation: There is an external  body responsible for reviewing the quality of RIAs and of ex post evacuations 1There are publicly available assessments of the effectiveness of RIA in modifying regulatory proposals 1There are reports on the level of compliance by government department with the requirements of RIA1There are indicators on the percentage of ex post evaluations that comply with guidelines0The effectiveness of ex post evaluations in improving the regulatory stock has been assessed in the last five years0 
 
 
 
     
 
Table A7.2:  Digital Decade key performance indicators: availability of digital public services 

(1) Digital Decade target by 2030: 100. (2) Publishing year, data were collected in the previous year 
Source: European Commission, State of the Digital Decade report 2025 

The  availability of  digital  public  services  for 
citizens remains below the EU average (Table 
A7.2).  The  proportion  of 
internet  users  that 
interacted  with  e-government  services  is  still 
catching  up  with  the  EU  (Germany:  70%;  EU: 
76%)(220).  For  example,  the  central  administrative 
portal verwaltung.bund.de is known to only 36% of 
citizens  and  used  by  only  12%,  a  slight 
improvement  since  2022(221).  Other  factors  that 
would  encourage  greater  use  are  mobile  access 
(69%),  user-friendly  design  (68%)  and  step-by-
step guidance (67%). 

Low uptake of digital identity compounds the 
digital  gap.  Only  25%  of  people  use  the  eID 
function  despite  it  being  available  for  15  years 
already,  a  figure  that  has  increased  only  slowly. 
Only  42%  of  ID  holders  even  activated  the  eID 
function.  Usage  varies 
significantly  among 
different  demographic  groups,  suggesting  that 
complexity  and  eID  usability  disproportionately 
affect  women,  older  people, 
lower-educated 
groups  and  people  in  rural  areas,  compounding 
digital  divides(222).  Availability  of  electronic  health 
records is above the EU average (Germany: 87; EU: 
83)(223), yet only 13% of people have used digital 
health  services.  The  electronic  patient  record 
system ’ePA für alle’ became mandatory for some 
information  (for  example,  medical  reports)  in 
2025(224). 

The  availability of  digital  public  services  for 
businesses  also  remains  below  the  EU 
average  (Table  A7.2).  Challenges  with  public 

(220) European Commission, Eurostat, 2026, E-government 

activities of individuals via websites. 

(221) Initiative D21, 2025, eGovernment MONITOR 2025. 

(222) Initiative D21, 2025, eGovernment MONITOR 2025. 

(223) European Commission, 2025, Digital Decade: eGovernment 

Benchmark. 

(224) Initiative D21, 2025, eGovernment MONITOR 2025. 

Digital and user-friendly public 
services 

Digitalisation  and  user-friendliness  of  public 
services remain a key challenge, in particular 
for  businesses.  While  53%  of  people  are 
satisfied  with  public  administration  services,  only 
35%  of  businesses  are,  placing  Germany  among 
the  weaker  performers  in  the  EU.  Some  47%  of 
people – the highest proportion in the EU – believe 
that  more  digital  services  would  improve  their 
experience,  indicating  unmet  demand(218).People 
also  report  frequent  friction,  with  44%  needing 
more  contact  with 
than 
expected  and  60%  being  repeatedly  asked  to 
provide the same information(219). 

the  administration 

Graph A7.2: Most time-consuming aspects of 
service delivery 

Source: European Commission. Flash Eurobarometer 567 / 
568 on satisfaction with administrative services (2026) 

(218) European Commission, 2026, Flash Eurobarometer surveys 
567 and 568 on satisfaction with administrative services. 

(219) European Commission, 2026, Flash Eurobarometer surveys 
567 and 568 on satisfaction with administrative services. 

73 

0%10%20%30%40%50%Time forresponsesApplicationformsDocumentspreparationApplicationformsTime forresponsesEnsuringcomplianceand reportingPeopleBusinessesEUEU-272023202420252025787679828179778670878783Access to electronic health records (0 to 100)Digital public services for citizens (0 to 100)Digital public services for businesses (0 to 100)Germany 
 
     
 
 
 
   
 
administration services translate into higher costs 
for  business:  62%  of  businesses  report  delays, 
44%  increased  operational  costs  and  22%  lost 
business opportunities due to dealings with public 
administration,  underlining  the  competitiveness 
fragmented 
slow 
implications 
digitalisation(225).  Some  28%  of  businesses  report 
that  digital  public  services  do  not  reduce  but 
actually  increase  time  and  effort,  suggesting 
replication of analogue complexity(226). 

and 

of 

Germany  is  working  on  the  national  and 
cross-border  exchange  of  data  between 
authorities  through  the  NOOTS  and  the  EU 
once-only  technical  system(229).  Germany  still 
has to identify the types of documents and data to 
exchange through the system and explore ways to 
shift 
to 
exchanging  structured  data.  The  NOOTS  will  start 
connecting registers and online services in 2026. 

submitting  documents 

from 

the 

there 

fragmented 

Germany's digitalisation efforts are hindered 
implementation  across 
by 
different  administrative 
levels.  Despite 
substantial investments supported by the Recovery 
and Resilience Facility, such as the development of 
the  national  once-only  technical  system  (NOOTS; 
RRF  investment  6.1.3)  and  the  digitalisation  push 
under  the  Online  Access  Act(227)  (RRF  investment 
6.1.2), 
is  uneven  adoption,  divergent 
procedures  and  unclear  responsibilities  across 
administrative layers. The structural  challenges to 
this  lie  in  the  decentralised  administrative  model. 
While  strategic  digital  initiatives  and  legislative 
level, 
design  are  often  decided  at  federal 
implementation often lies with the Länder and the 
over  11 000  municipalities,  each 
retaining 
substantial autonomy over procedures, IT systems 
and  organisational  arrangements.  As  a  result, 
digitalisation  often  reproduces  and  sometimes 
exacerbates  existing  administrative  complexity 
instead  of  delivering  end-to-end  simplification. 
Around 60% of administrative services have been 
digitalised  under  the  OZG  framework  so  far,  yet 
only  a  few  services  are  consistently  available 
nationwide,  and  a  patchwork  of  solutions  rather 
than  uniform  service  delivery  exist,  depending  on 
where  people  or  businesses  are  based.  Limited 
data  reuse  is  reflected  in  the  low  availability  of 
pre-filled  forms  (score  of  38  out  of  100),  which 
are  offered  for  life  events  for  citizens  and 
businesses,  far  below  the  EU  average  of  71(228). 
The  lack  of  pre-filled  data  suggests  limited  data 
exchange, service integration and interoperability. 

digital 

Although  formats  of  cooperation  exist,  additional 
tools  are  needed  to  overcome  fragmentation. 
include  common  standards,  mandatory 
These 
reuse 
shared 
of 
infrastructures and more systematic task bundling 
or consolidation where tasks and needs are similar 
across  governance  levels,  which  could  improve 
service 
significant 
savings(230). 

generate 

building 

quality 

blocks, 

and 

The  permits  system  illustrates  how  digital 
fragmentation  affects  competitiveness  and 
investment.  Slow  and  complex  planning  and 
approval  procedures  continue  to  delay  housing, 
infrastructure  projects  and  raise 
energy  and 
compliance costs for businesses. Germany’s public 
investment  efficiency  has  declined  by  about  15% 
over  the  last  decade  and  Germany  scores  below 
other  EU  Member  States  on 
infrastructure 
planning/coordination.  These  bottlenecks  are 
exacerbated  by  uneven 
local  administrative 
capacity, fragmented registries and limited use of 
shared digital platforms. Differences in procedures 
across  Länder  and  municipalities  reduce  scale 
effects  and  act  as  barriers  to  more  efficient 
service delivery(231). 

The  new  Ministry  for  Digitalisation  and  State 
Modernisation,  along  with  its  Digitalvorbehalt  and 
like  the  Deutschland-Stack,  signals 
initiatives 
stronger  political  ambition  and  steering.  The 
Association of local counties (Landkreistag) is also 

(225) European Commission, 2026, Flash Eurobarometer surveys 
567 and 568 on satisfaction with administrative services. 

(226) European Commission, 2026, Flash Eurobarometer surveys 
567 and 568 on satisfaction with administrative services. 

(227) BSI, Online Access Act. 

(228) European Commission, 2025, Digital Decade: eGovernment 

Benchmark. 

(229) European Commission, Once-Only Technical System 

Acceleratormeter, Ec.europa.eu. 

(230) NKR, 2025, Bündelung im Föderalstaat. Zeitgemäße 

Aufgabenorganisation für eine leistungsfähige und resiliente 
Verwaltung. 

(231) Germany: 2025 Article IV Consultation-Press Release; Staff 

Report; and Statement by the Executive Director for 
Germany; IMF Country Report No. 26/036; January 26, 2026. 

74 

 
 
 
receiving technical support for IT consolidation and 
increasing interoperability between counties(232). 

Civil service 

The  civil  service  remains  a  key  institutional 
strength  but  is  increasingly  constrained  by 
structural  challenges  which  affect 
the 
implementation of digital and administrative 
reforms.  Demographic  pressure  is  particularly 
acute. The retirement wave over the next 15 years 
is  expected  to  create  a  deficit  of  nearly  one third 
of  federal  staff,  raising  significant  replacement 
and  knowledge-loss  risks,  above  the  EU  average. 
(For  municipal  employees  see  Annex  18).  At  the 
same  time,  the  share  of  staff  with  higher 
education remains below the EU and participation 
in  continuous  training  is  also  significantly  lower, 
limiting re- and upskilling in digital, analytical and 
managerial  skills(233).  A  persistent  gender  gap  in 
senior management limits leadership diversity and 
reduces  the  attractiveness  of  the  civil  service  for 
highly  qualified  women(234).  These  pressures  are 
becoming  harder 
to  absorb  as  personnel 
expenditure has doubled over the past decade and 
material expenditure has also risen strongly, while 
complexity and staffing gaps persist(235). 

A  core  challenge  lies  in  the  fragmented  and 
insufficiently transparent organisation of the 
federal  administration,  particularly  HR  and 
support  functions.  Under  the  Ressortprinzip, 
each  ministry  and  many  of  the  around  950 
subordinate federal entities maintain their own HR 
processes,  while  no  central  civil  service  agency  or 
shared federal HR data repository exists to support 
recruitment,  mobility, 
in 
common  standards 
training  or  performance  management.  This  limits 
the  ability  to  manage  the  workforce  strategically 
across 
federal  administration,  weakens 
transparency  on  tasks,  structures  and  costs, 

the 

(232) Germany - Reforms and Investments - European 

Commission. 

(233) Eurostat 2024. European Commission, Eurostat, 

2026, European Union Labour Force Survey, Employed 
persons by economic activity (NACE Rev. 2) (2008-2026). 

(234) European Institute for Gender Equality, 2025, Gender 

Statistics Database. 

(235) Konrad Adenauer Foundation, 2025, Mehr Leistung – 

Weniger Staat?. 

reduces  economies  of  scale  in  support  functions 
and  makes  it  harder  to  respond  coherently  to 
demographic change and new skill needs. 

The  newly  adopted  modernisation  agenda 
seeks  to  address  some  of  these  weaknesses 
through  more  strategic  and  service-oriented 
personnel management. It includes measures on 
strategic  workforce  planning,  mobility  and 
reskilling, 
leadership  development,  digital  and 
change  management  skills,  modernisation  of 
service law and the bundling of personnel services 
where  needs  are  similar.  This  acknowledges  that 
greater  administrative  effectiveness  will  require 
not  only  better  staffing  policies,  but  also  more 
standardised  processes,  shared  service  provision 
and a more coherent organisational set-up across 
the  federal  administration.  It  also  aims  to  reduce 
staff by 8% in parts of the federal administration 
by 2029 and to streamline structures and internal 
service  delivery,  marking  a  shift  away  from 
continued  expansion.  At  the  same  time,  many 
measures 
remain  based  on  pilots,  shared 
standards  and  cross-government  coordination, 
substantial 
retain 
meaning 
responsibility for implementation(236). 

that  ministries 

federal  administration 

In parallel, Technical Support (TSI) projects support 
in  strengthening 
the 
implementation 
task 
reviews,  service  redesign,  monitoring  frameworks 
in  HR 
for  burden 
management. 

reduction  and 

including  on 

capacity, 

reforms 

Integrity 

Perception of corruption when doing business 
remains very low, but experienced corruption 
is slightly higher than EU average. Some 47% 
of businesses consider corruption widespread (EU: 
63%)  but  only  14%  of  businesses  consider  that 
corruption is a problem when doing business, way 
below  the  EU  average(237).  Sectors  particularly 
vulnerable  to  corruption  are  health  and  the 
construction  sector  (see  Annex  5).  At  the  same 

(236) Federal Ministry for Digital Transformation and Government 
Modernisation, 2025, Modernisierungsagenda Bund - 
Bundesministerium für Digitales und Staatsmodernisierung. 

(237) European Commission, 2025, Flash Eurobarometer survey 
557 on Businesses' attitudes towards corruption in the EU. 

75 

 
 
 
time,  more  businesses  have  been  asked  or 
expected  to  offer  a  gift,  a  favour  or  extra  money 
for  permits,  services  or  procurement  compared  to 
the  EU  average 
(Germany:  12%;  EU:  10%). 
Businesses  reporting  appropriate  punishment  for 
bribery of senior officials matches the EU average 
(Germany: 33%; EU: 33%)(238). 

liability  of 

Germany  has  taken  limited  new  steps  to 
improve  corruption  prevention  and  detection 
while remaining effective. High-level cases are 
pursued,  and  no  systemic  weaknesses  have  been 
identified. However, broader reforms to strengthen 
the 
legal  persons  and  corporate 
sanctions  for  foreign  bribery  have  still  not  been 
completed.  Germany  also  operates  a  well-
functioning  public  register  for  lobbyists.  Concerns 
remain  regarding  the  secondary  activities  of 
Members of Parliament (MPs). Certain prohibitions 
are in place for remunerated lobbying activities of 
MPs. However, there is no requirement to disclose 
potential conflicts of interest, especially in respect 
of  private  companies.  There  have  been  no 
transparency  over 
developments 
increase 
federal 
financial  and  business 
ministers and other high-level officials. 

interests  of 

to 

Justice 

The  justice  system  is  continuing  to  operate 
efficiently  overall.  The  time  taken  to  reach  a 
decision  in  civil  and  commercial  cases  at  first 
instance courts decreased slightly (from 249 days 
in 2023 to 232 days in 2024). The estimated time 
to  resolve  administrative  cases  at  first  instance 
courts  remained  consistently  higher  (391  days  in 
2023 compared to 389 days in 2024). The quality 
of  the  justice  system  is  good  overall.  Germany  is 
performing moderately well in terms of digitalising 
its  justice  system.  The  country  lags  behind  in 
digital solutions to initiate and follow proceedings 
in  civil/commercial  and  administrative  cases,  as 
well  as  in  the  general  public’s  online  access  to 
published judgments. But it performs very well on 
arrangements  for  producing  machine-readable 
judicial decisions(239). 

(238) European Commission, 2025, Rule of Law Report. 

(239) For a more detailed analysis of the performance of the 
justice system in Germany, see the upcoming 2026 EU 
Justice Scoreboard and the 2025 Rule of Law Report. 

76 

 
 
SUSTAINABILITY 
ANNEX 8: INDUSTRY DECARBONISATION, CIRCULARITY AND CLIMATE MITIGATION 

a 

lengthy 

received 

infrastructure  and 

constitute  bottlenecks. 

Germany’s  industrial  base  is  undergoing  a 
transformation  to  meet  climate  targets  and 
remain competitive in a net-zero and circular 
setting.  With  a  strong  policy  landscape  that 
includes  initiatives  like  the  climate  and  transition 
fund  (Klima-  und  Transformationsfonds,  KTF), 
Germany  is  fostering  innovation  in  low-carbon 
technologies and supporting the transition to clean 
industrial  production, but the slow build-up  of the 
industrial 
required 
In  2025, 
permitting 
Germany 
country-specific 
recommendation  to  renovate  the  rail  network  as 
part  of  accelerating  the  decarbonisation  of  the 
transport sector. For the next years, Germany has 
allocated  significant  funding  to  decarbonised 
mobility  including  rail  infrastructure.  At  the  same 
time,  persistent  capacity  constraints  and  low 
structural 
punctuality 
challenges  despite  governance  and 
funding 
reforms.  Despite  being  a  leader  in  recycling  and 
secondary raw material patents, the integration of 
these  materials  into  manufacturing  is  sluggish, 
pointing  to  a  reliance  on  primary  resources. 
Challenges  such  as  air  and  water  pollution 
continue 
fiscal 
measures could strengthen circularity efforts. This 
annex  reviews  the  areas  in  need  of  urgent 
attention 
industry 
decarbonisation,  circular  economy  and  climate 
mitigation,  looking  at  a  number  of  different 
aspects (240). 

to  persist,  while  enhanced 

unresolved 

Germany’s 

highlight 

clean 

in 

Industry decarbonisation 

Greenhouse gas emissions from industry 

Germany’s manufacturing sector is relatively 
greenhouse  gas  (GHG)  emission  efficient, 
with most emissions coming from energy use 
rather  than  industrial  processes (241).  About 

(240) For regional aspects of decarbonisation, see Annex 18. 

(241) This Annex discusses the transition of Germany’s 

manufacturing industry, specifically its energy-intensive 
industries, to low-carbon and net-zero modes of production, 
which is key to preserving competitiveness on the path 
towards climate neutrality as mandated by the European 
Climate Law. A broader perspective on the current 
competitiveness challenges facing Germany’s manufacturing 
industry is provided in Annex 5. For a more detailed 

77 

the 

one-fifth  of  Germany’s  total  emissions  are  from 
manufacturing (242). 
Germany’s 
While 
manufacturing 
highest 
production has 
proportion of energy-related emissions among the 
EU  countries  (2023),  its  total  emissions  in  the 
sector  are  20%  more  efficient  than  the  EU 
average, making Germany the sixth best in the EU 
in  this  regard (243).  However,  Germany’s  reduction 
in  emission  intensity  was  slower  than  the  EU 
average,  decreasing  by  16%  in  the  five  years  to 
2023.  The  energy-related  GHG  emission  intensity 
of Germany’s manufacturing production has fallen, 
but a significant shift to clean energy has not yet 
happened (244). 
Iron  and  steel,  cement  and 
in 
chemicals  are  the  biggest  GHG  emitters 
Germany’s  manufacturing 
the 
manufacture  of  metals  being  particularly  GHG 
emission intensive compared with the EU average.  

sector,  with 

Policies to promote industry decarbonisation 

Germany  complements  the  carbon  price 
incentive of the EU emissions trading system 
(ETS)  with  targeted  support  of  about 
EUR 35 billion 
industry 
decarbonisation (245).  Its  climate  law  (amended 
in  June  2021)  prescribes  limiting  GHG  emissions 
from industry to 118 Mt CO2eq by 2030, or about 
two  thirds  of  the  2021  level  of  182 Mt (246). 

year 

per 

for 

description of greenhouse gas emissions from industry, see 
European Commission (2025), 2025 Country Report - 
Germany, Annex A7. Clean industry and climate mitigation. 

(242) 21%, in 2024. Data on the manufacturing sector exclude the 

NACE division C19 – manufacture of coke and refined 
petroleum products, for better match of the sectoral data 
from Eurostat (gross value added) with those from the 
UNFCCC under the Common Reporting Format. Also see 
further indicators on industry decarbonisation, as well as the 
annotation for further information, in table A8.1 at the end of 
this Annex. 

(243) See European Commission (2025), 2025 Country Report – 

Germany, pp. 61ff. 

(244) Energy-related emission intensity dropped by 8% (EU 

average: 16%), while the share of electricity and renewables 
remained at around 39%. Emission intensity from industrial 
processes fell by 18%, which is less than the EU’s average of 
23%. 

(245) Funding for industry decarbonisation under the KTF, including 

hydrogen infrastructure but excluding electricity cost 
subsidies; see footnote 6 for details. 

(246) Erstes Gesetz zur Änderung des Bundes-Klimaschutgesetzes, 
vom 18. August 2021, Bundesgesetzblatt Jahrgang 2021, 
Art. 1 (10). 

 
 
 
 
 
 
 
 
Germany’s  key  funding  instrument  for  climate 
mitigation  is  the  climate  and  transition  fund 
(Klima-  und  Transformationsfonds,  KTF),  boosted 
by  a  new  special  fund  for  infrastructure  and 
climate  neutrality (247).  Its  measures  to  facilitate 
the  decarbonisation  of  manufacturing  production 
comprise subsidies for: (i) developing the hydrogen 
value  chain  as  part  of  the  first  Important  Project 
of Common European Interest (IPCEI) on hydrogen 
(with EUR 1.2 billion in 2025 and EUR 1.5 billion in 
2026) (248);  (ii) supporting  energy  and  resource 
efficiency  measures  in  the  economy  (with  about 
EUR 950 million each for 2025 and 2026); and (iii) 
providing specific funding for industry and climate 
mitigation 
und 
Klimaschutz,  BIK)  and  carbon  contracts  for 
(with  about 
difference 
EUR 700 million 
2026). 
to 
and  Klimaschutz 
Bundesförderung 
supports  small  and  medium-sized 
industries 
(known  as  Mittelstand)  in  particular,  covering 
industry decarbonisation and carbon management, 
and  also 
research  and 
development  projects (249).  The  first  call  for 

(Klimaschutzverträge) 

for 
Industrie 

including  applied 

(Bundesförderung 

Industrie 

2025 

(247) For an overview, see Bundesfinanzministerium, Das 

Sondervermögen für Infrastruktur und Klimaneutralität, 
5.12.2025. The special fund for infrastructure and climate 
neutrality (Sondervermögen Infrastruktur und 
Klimaneutralität) is a debt-financed government vehicle 
adopted by the parliament in March 2025. The KTF was set 
up in 2022 to support the transition to climate neutrality. A 
main part of its funding is revenue accruing to Germany from 
the EU ETS and from CO2 pricing under the Fuel Emissions 
Trading Act (Brennstoff-emissionshandelsgesetz, BEHG), with 
revenue of EUR 5.3 billion and EUR 4.3 billion (from the EU 
ETS) and EUR 15.4 billion and EUR 16.7 billion (from the 
BEHG) expected for 2025 and 2026 respectively. The special 
fund is expected to boost the KTF by a total of 
EUR 100 billion through annual tranches of EUR 10 billion 
from 2025. With further revenue from reserves, overall 
funding is envisaged of about EUR 37 billion in 2025 and 
EUR 35 billion in 2026. For planned expenditure from the 
KTF, see the government’s draft budgetary plan of 15 August 
2025 (Deutscher Bundestag – 21. Wahlperiode, Drucksache 
21/600), Annex 3, Chapter 6092., Overview X on the 20 
largest grants from the federal government as defined in the 
29th subsidy report on p. 139 of the same document, and the 
recommendation for a decision of the budget committee on 
Germany’s draft budget 2026 of 17 November 2025 
(Deutscher Bundestag, Drucksache 21/600), ibid. 

(248) See Bundesministerium für Wirtschaft und Energie: IPCEI 

Wasserstoff: Gemeinsam einen Europäischen 
Wasserstoffmarkt schaffen, accessed on 12.12.2005. The 
figures for the planned spending for 2025 and 2026 on the 
different measures are from the 2025 draft budgetary plan 
and the recommendation of the budget committee as 
indicated above. 

(249) Source: exchange in writing (questionnaire) with national 
authorities as part of the fact-finding for the European 

78 

applications  focused  on  energy-intensive  sectors 
such as chemicals, steel, ceramics, paper and pulp, 
lime (250).  Ongoing  projects 
and  cement  and 
include  the  electrification  of  blast  furnaces  for 
steel  production, 
low-carbon  technologies  for 
technical  ceramics,  and  CO2  capture  in  cement 
production, to name a few (251).  As of early  2026, 
the  second  call  for  application  remains  in  a 
preparatory  phase,  with  the  competitive  auction 
expected  in  mid-2026,  subject  to  EU  state  aid 
approval  (252).  In  autumn  2025,  Germany  also 
launched  the  preparatory  stage  of  the  2026 
bidding  round  for  carbon  contracts  for  difference, 
which  now  also  includes  support  for  carbon 
capture  utilisation  and  storage  projects (253). 
Germany’s  measures 
industry 
decarbonisation, also form part of its recovery and 
resilience  plan (254).  In  addition  to  subsidies  for 
low-carbon  and  net-zero 
industrial  production 
technologies, Germany has budgeted subsidies for 
electricity-intensive  companies  to  compensate  for 
price 
emissions 

trading-related 

electricity 

foster 

to 

Semester analysis. On the BIK initiative, also see 
Projektträger Jülich (PTJ), Bundesförderung Industrie- und 
Klimaschutz (BIK) - Förderung von CCU und CCS, and 
Kompetenzzentrum Klimaschutz in energieintensiven 
Industrien: Bundesförderung Industrie und Klimaschutz: 
Modul 1, both accessed on 12.12.2025. The first funding 
guidelines of module 1 expired in 2023; for the amended 
version, see Bundesanzeiger, Amtliche Veröffentlichungen 
30.08.2024, B1 to B3. 

(250) Without excluding other sectors. For an overview, see 

Bundeswirtschaftsministerium (2024), Gute Nachricht für die 
Transformation des Mittelstands: Bundesförderung Industrie 
und Klimaschutz gestartet, Schlaglichter der 
Wirtschaftspolitik 10/2024, and Industrie- und 
Handelskammer zu Hagen: Bundesförderung Industrie und 
Klimaschutz (BIK). 

(251) See the product database of Kompetenzzentrum 

Klimaschutz in energieintensiven Industrien (accessed on 
12.12.2025). 

(252) See Kompetenzzentrum Klimaschutz in energieintensiven 
Industrien, Bundesförderung industrie und Klimaschutz, 
accessed on 12.12.2025, as well as Clean Energy Wire, 
2025, https://www.cleanenergywire.org/news/germany-
starts-preparations-2026-round-industry-climate-contracts. 

(253) See Bundesministerium für Wirtschaft und Energie, 

Vorbereitendes Verfahren für CO2-Differenzverträge startet, 
6.10.2025. These contracts specify decarbonisation 
milestones within their duration of 15 years, while hedging 
for CO2 and energy price risks and cost differences with 
fossil-based production methods in this period. 

(254) With EUR 2.105 billion from the Recovery and Resilience 

Facility and EUR 3.5 billion from the KTF, see 
Bundesfinanzministerium, Übersicht zum Deutschen Aufbau- 
und Resilienzplan (DARP), Komponente 1.1 Dekarbonisierung, 
insb. durch erneuerbaren Wasserstoff, 5.11.2025. 

 
 
 
 
increases.  Those  subsidies  are  worth  about 
EUR 2.85 billion in 2025 and EUR 4 billion in 2026 
respectively (255). 

and 

carbon 

capture 

Germany  has  taken  legislative  measures  to 
expand  the  infrastructure  needed  for  net-
zero  industry.  In  late  2025,  the  amended  CO2 
Storage Act entered into force (256), paving the way 
larger-scale  commercial  capture  and 
for  the 
storage  of  CO2,  with  the  aim  of  providing  a  fully 
functional 
storage 
infrastructure  in  the  early  2030s.  The  amended 
framework  makes  it  possible  to  retrofit  natural 
gas  pipelines  to  transport  CO2,  to  tap 
into 
Germany’s  potential  for  geological  storage  in  its 
exclusive  economic  zone  and  continental  shelf  in 
the  North  Sea  and  to  opt into  onshore  storage  at 
Land  level.  In  late  February,  the  Bundestag  also 
adopted 
legislation  to  accelerate  the  supply 
framework  for  green  hydrogen(257).  Both  acts 
qualify  sectoral  infrastructure  projects  as  serving 
overriding public interest, with the aim of speeding 
up  permitting  procedures.  In  the  meantime,  the 
ratification  of  the  London  Protocol  and  the 
amendment  of  the  Deep  Sea  Disposal  Act  (the 
legal  bases  for  CO2  export  and  storage  in  the 
North  Sea  respectively)  are  pending  adoption. 
Germany  is  also  considering  stimulating  demand 
through  public 
for  climate-friendly  products 
procurement (258).  To  step  up  coordinated  efforts 
to  achieve  its  sustainability  objectives  for  2030, 
including  in  the  areas  of  sustainable  economic 
growth  and  climate  mitigation,  the  government 
has  tasked  a  deputy  ministers’  committee  for 
sustainable  development  with  setting  out  specific 
its  2025  sustainability 
actions  to 
strategy (259). 

implement 

(255) Bundeshaushaltsplan 2026, Annex 3, bundeshaushalt.de.. 

(256) Gesetz zur Änderung des Kohlendioxid-Speicherungsgesetzes 
vom 25. November 2025, Bundesgesetzblatt Nr. 282/2025, 
27.11.2025. 

(257) Deutscher Bundestag, 2026, 

https://www.bundestag.de/dokumente/textarchiv/2026/kw09-
de-wasserstoffhochlauf-1149758?.  

(258) Source: exchange in writing (questionnaire) with national 
authorities as part of the fact-finding for the European 
Semester analysis. 

(259) Deutscher Bundestag – 21. Wahlperiode, Drucksache 
21/2696, Unterrichtung durch die Bundesregierung: 
Nachhaltigkeit für ein modernes und zukunftsfähiges 
Deutschland: Beschluss der Bundesregierung, zugeleitet mit 
Schreiben des Bundeskanzleramtes vom 5. November 2025, 
5.11.2025. 

Despite Germany’s broad toolkit to facilitate 
industry  transition,  challenges 
the  clean 
remain.  According  to  the  authorities,  the  key 
challenges are: the high cost of energy and of the 
transition; the limited availability of green energy, 
notably hydrogen; access to the grid and to H2 and 
CO2  infrastructure,  lengthy  permitting  procedures, 
and  excessive  bureaucracy.  The  willingness  to 
invest  in  net-zero  industry  is  also  constrained  by 
uncertainty  about  the  development  of  the  ETS 
price, the demand for CO2 transportation (including 
transit),  the  availability  of  CO2  storage  facilities 
and  energy  price  developments.  Many  of  the 
present  industry  decarbonisation  measures  are  in 
their 
broad-based 
implementation envisaged for the last third of the 
decade.  To  achieve  its  industry  decarbonisation 
objective,  Germany  would  benefit  from  credibly 
setting  out 
including 
investment  support,  to  provide  credibility  and 
certainty. 

relevant  policies, 

stages, 

early 

with 

the 

as 

for 

such 

technologies 

single-technology 

A  particular  challenge  to  investment  in  low-
carbon technologies is the lack of clarity for 
hybrid projects. The permitting framework is well 
developed 
renewable 
projects  (e.g.  offshore  wind (260)),  but  less  so  for 
hybrid  ones  combining  energy  generation  with 
other 
hydrogen 
production (261).  For  such  projects,  overlapping 
jurisdictions 
of 
responsibilities  between  authorities  give  rise  to 
procedural  deadlocks.  Germany  would  benefit 
from  developing  a  dedicated  permitting  standard 
for offshore hybrid projects in particular, similar to 
the  existing  frameworks  for  offshore  wind. 
Establishing  clear  administrative  responsibilities 
and  providing  guidance  for  integrated  renewable 
hydrogen  developments  would  enable  innovation 
while enhancing legal certainty. 

division 

unclear 

and 

an 

to 

systematic  approach 

A 
industrial 
decarbonisation  is  lacking,  amidst  steadily 
decreasing output (262). While industry emissions 
fell by 3.8% from 2024 to 2025, this was mostly 
in  energy-intensive 
due  to 

lower  production 

(260) As also included under the REPowerEU chapter of Germany’s 

recovery and resilience plan. 

(261) This insight stems from the implementation of projects with 

support from the Innovation Fund, the EU’s funding 
programme for the deployment of innovative net-zero and 
low-carbon technologies. 

(262) Destatis, 2026, Production in January 2026. 

79 

 
 
 
industries (263).  The  sector’s  transition  depends  on 
electrification,  the  availability  and  use  of  green 
energy,  notably  hydrogen,  and  Carbon,  Capture 
and  Storage  (CCS)  in  hard  to  abate  sectors.  The 
Hydrogen  Acceleration  Act  and  the  amended 
legal 
Carbon  Storage  Act  tackle  two  crucial 
bottlenecks but momentum to build the necessary 
environment  for  the  scaled  development  of 
electrification  and  CCS  projects  is  building  slowly. 
(core  pipeline  network), 
Production, 
storage  and 
issues 
affecting  both  areas.  Integrated  solutions  are 
being  hindered  by  lengthy  industrial  permitting 
procedures  that  are  fragmented  across  Länder, 
technologies,  sectors (264),  and  are  sequential 
rather than parallel. This causes multi-year delays 
for  electrification  projects  and  negatively  impacts 
investment certainty despite available funding. 

industrial  contracts  are 

transport 

Germany’s  effort  sharing  sectors  are  expected  to 
have been 22.6% below those of 2005. By 2030, 
current  and  planned  policies  and  measures  are 
expected to lead to a decrease by 36.8%, leaving a 
gap of 13.2 percentage points to the 2030 target 
of  −50%.  Germany  could  bridge  part  of  this  gap 
with own unused annual emission allocations from 
previous  years  but  would  also  need  transfers  of 
allocations  from  other  Member  States  to  comply 
with  the  Effort  Sharing  Regulation.  The  timely 
implementation  of  its  additional  measures  and 
identification  of  new  ones  will  remain  crucial  for 
Germany to progress towards climate neutrality. 

Graph A8.1: Greenhouse gas emissions in the 
effort sharing sectors, 2005, 2023, and 2024 

Reduction of effort sharing emissions 

Compliance  with  effort  sharing  limits  with 
domestic measures 

Germany’s  effort  sharing  emissions  are 
projected  to  be  above  its  target  in  2030; 
previous  years’  unused  emission  allocations 
would  not  suffice  to  cover  the  gap  for 
compliance  with 
Sharing 
the 
Regulation (265).  In  2024,  GHG  emissions  from 

Effort 

(263) Umweltbundesamt, 2026, Umweltbundesamt.de. 

(264) Many investments do not benefit from the acceleration rules 

because they fall outside the defined scope or trigger 
additional approvals (construction law, transport access, site 
development). 

(265) The  European  effort  sharing 

regulation  sectors  cover 
emissions  from  areas  like  transport,  buildings,  agriculture, 
and waste, with each EU country assigned a binding emission 
reduction  target  that  is  calibrated  to  reflect  its  economic 
capacity and ability to deliver cost-effective reductions. The 
national  GHG  emission  reduction  target  is  set  out  in 
Regulation (EU) 2018/842 (the Effort Sharing Regulation). It 
applies  jointly  to  buildings  (heating  and  cooling),  road 
transport,  agriculture,  waste  and  small  industry  (known  as 
the effort sharing sectors). The emissions from effort sharing 
sectors for 2024 are based on approximated inventory data. 
The  final  data  will  be  established 
in  2027  after  a 
comprehensive  review.  Projections  about  the  impact  of 
current  policies 
(‘with  existing  measures’,  WEM)  and 
additional  policies (‘with  additional  measures’,  WAM)  as  per 
Germany’s  2025  reporting  under  Article  17  of  Regulation 
(EU)  2018/1999  (the  Governance  Regulation).  Also  see 
European  Commission  (2025),  Climate  Action  Progress 
Report  2025  –  Technical  Information,  Commission  staff 

Source: European Environment Agency. 

Sustainable transport 

In  2024,  38%  of  Germany’s  effort  sharing 
emissions  came  from  road  transport,  having 
decreased by only 8% from 2005 levels (266). 
country-specific 
For  Germany, 
2025 
recommendations  highlighted 
for 
challenges 
decarbonising  the  transport  sector,  including  the 
derelict  state  of  the  rail  network.  Under  its 
resilience  plan,  Germany  has 
recovery  and 

the 

working  document,  Brussels,  Chapter  9  (pp. 111ff.),  and  in 
particular Tables 25 and 26. 

(266) See Graph A8.1, and Table A8.1 at the end of this Annex. 

80 

050100150200250300350400450500200520232024MtCO2eWasteSmall industryAgricultureBuildings (under ESR)Domestic transport (excl. aviation) 
 
 
      
 
includes 

investments 

infrastructure 

investment  amounted 

invested  in  further  supporting  electric  mobility. 
in  public  charging 
This 
infrastructure  and  projects  for  hydrogen  and  fuel 
cell applications in transport. In addition, Germany 
has  significantly 
investment  and 
increased 
accelerated large-scale renewal under DB InfraGO. 
Total spending on rail infrastructure was budgeted 
at  around  EUR 23.1 billion  in  2025,  while  federal 
rail 
to 
EUR 18.1 billion (267)  –  nearly  EUR 9 billion  more 
than  in  2023.  The  government  has  committed 
EUR 106.5 billion  for  railway  infrastructure  up  to 
2029 (268).  Deutsche  Bahn  reported  extensive 
construction activity, including around 2 173 km of 
track rebuilt, 2 065 switches renewed, roughly 950 
stations  modernised  and  60  new  signal  boxes 
commissioned  in  2025,  along  with  expansion  of 
the European Train Control System to 683 km (269). 
However,  performance  gaps  persist:  infrastructure 
remains  heavily  utilised,  digital  deployment  is 
uneven,  and  punctuality  remains  low  (just  above 
60%  for  long-distance  services).  This  shows  that 
modernisation  has  not  yet  resolved  structural 
capacity  constraints  or  reliability  problems.  Legal 
reforms  have  focused  mainly  on  governance, 
funding frameworks and cost regulation and have 
included  reforms  to  train-path  pricing,  faster 
planning  and  approval  procedures,  and  further 
organisational  unbundling  of  infrastructure  within 
the Deutsche Bahn group (270).  

Sustainable industry 

Circular economy industry 

implementation 

is 
Germany’s  circular  economy  strategy 
ambitious,  but 
remains 
uneven,  with  slow  adoption  of  secondary 
materials. The national circular economy strategy 
(NCES) (271)  adopted  at  the  end  of  2024  aims  to 
massively reduce the use of primary raw materials 
resource  efficiency,  yet  progress 
and  boost 
remains  uneven  across  sectors.  On  the  one  hand, 
Germany ranks among the EU leaders for recycling 
rates:  66.9%  of  municipal  waste  is  recycled  (EU 
construction  and 
average:  48%),  94%  of 
demolition  waste  is  recovered (272)  (EU  average: 
89%)  and  Germany  is  fifth  for  the  recycling  of 
plastic  packaging  (approximately  52%  in  2023, 
which  is  above  the  EU  average  of  42% (273)). 
Germany  also  stands  out  as  the  European  leader 
in  patents  related  to  recycling  and  secondary  raw 
materials.  In  2019,  it  filed  104  patents.  Though 
this number dropped to 46 in 2020, it is still well 
above the EU average (274). The pace of innovation 
in  Germany  is  driven  by  a  surge  in  patent 
applications,  especially  related  to  the  reuse  of 
waste  materials,  where  Germany  is  the  only 
European 
larger 
country 
economies such as the US (275). 

competing  with 

(267) Integrated Interim Report, Deutsche Bahn, 2025, 

https://zbir.deutschebahn.com/2025/en/interim-group-
management-report-unaudited/development-of-business-
units/db-infrago-business-unit/development-of-the-
infrastructure/. 

(268) EU Transport News, 2025, 

https://www.eutransportnews.com/post/german-federal-
government-commits-106-5-billion-railway-infrastructure-
investment-through-2029. 

(269) RailMarket News, 2026, 

https://railmarket.com/news/infrastructure/45702-germany-
s-rail-network-sees-eur19bn-works-in-2025?region=me. 

(271) German Federal Ministry for the Environment, Nature 

Conservation, Nuclear Safety and Consumer Protection. 
National Circular Economy Strategy (NCES), 2024, 
https://www.bundesumweltministerium.de/en/topics/circular-
economy/circular-economy-strategy. 

(272) Techno-economic and environmental assessment of 

construction and demolition waste management in the 
European Union, JRC, 2024, https://build-
up.ec.europa.eu/system/files/2024-04/JRC2024-Techno-
economic_and_environmental_assessment_of_CDW_manag
ement_in_the_EU_Final_with_identifiers_2.pdf. 

(273) Eurostat, Packaging waste by waste management 

operations, 
https://ec.europa.eu/eurostat/databrowser/view/env_waspac_
_custom_14718907/default/table?lang=en. 

(274) Eurostat, Patents related to recycling and secondary raw 

materials, 
https://ec.europa.eu/eurostat/databrowser/view/cei_cie020/d
efault/table?lang=en&category=cei.cei_cie. 

(270) Integrated Interim Report 2025, Deutsche Bahn, 

(275) German Patent and Trade Market Office, Patent Offices offer 

https://zbir.deutschebahn.com/2025/en/interim-group-
management-report-unaudited/fundamentals/development-
of-business-environment/national-environment. 

a ’showcase‘ for green innovations 2025, 
https://www.dpma.de/english/services/public_relations/press_
releases/15october2025/. 

81 

 
 
 
 
 
On  the  other  hand,  while  per  capita  material 
consumption has decreased by 24% over the past 
five  years (276)  and  resource  productivity  has 
increased in parallel, by 46.6% between 2019 and 
2024 (277),  waste  generation  is  still  very  high. 
Germany  ranks  fifth  in  terms  of  municipal  waste 
generation per capita (278) and seventh in terms of 
construction  and  demolition  waste  per  capita. 
Secondary material use has grown only marginally 
in  the  past  10  years,  from  11.7%  to  14.8%, 
underscoring  a  persistent  reliance  on  primary 
resources (279). 

Furthermore,  Germany’s  fiscal  tools  for 
circular  practices  remain  underdeveloped, 
limiting  potential 
revenue  and  waste 
reduction.  Total  environmental  tax  revenue  is 
lower than the EU average (1.71% of GDP in 2020; 
EU  average:  2.24%) (280)(281),  with 
taxes  on 
pollution  and  resources  making  up  a  very  small 

(276) Eurostat, Material footprint, 

https://ec.europa.eu/eurostat/databrowser/view/cei_pc020/de
fault/table?lang=en. 

(277) Germany ranks fifth in terms of municipal waste generation 
per capita (Eurostat, Generation of municipal waste per 
capita, 
https://ec.europa.eu/eurostat/databrowser/view/cei_pc031/de
fault/table?lang=en) and seventh in terms of construction 
and demolition waste per capita (JRC, A report on 
sustainable management of construction and demolition 
waste, 2024, https://build-up.ec.europa.eu/en/resources-and-
tools/publications/report-sustainable-management-
construction-and-demolition-waste). 

(278) Eurostat, Generation of municipal waste per capita, 

https://ec.europa.eu/eurostat/databrowser/view/cei_pc031/de
fault/table?lang=en. 

The share of municipal waste incineration remains stable at 

EUR 6.2 billion annually, reflecting a reliance on 
consumption-driven materials (Eurostat, Municipal Waste by 
waste management operations, 
https://ec.europa.eu/eurostat/databrowser/view/env_wasmun/
default/table?lang=en). 

(279) Eurostat, circular material use rate, 

https://ec.europa.eu/eurostat/databrowser/view/env_ac_cur/d
efault/table?lang=en&category=env.env_mrp. 

(280) European Commission: Directorate-General for Environment, 

RPA Europe, Conduct in-depth assessments on 
environmental priorities to support the greening of the 
European Semester and integration of environmental 
priorities into the EU’s economic governance framework, 
2025. 

(281) European Commission, Environmental Implementation 

Review (2025), Germany country report, 
https://environment.ec.europa.eu/law-and-
governance/environmental-implementation-review_en. 

share  of  the  total  (0.01% (282)).  Introducing  fiscal 
instruments  like  the  ‘pay-as-you-throw’  system 
across  municipalities  and  regions  or  a  CO2  tax  on 
incineration  could  help  reduce  the  amount  of 
mixed  municipal  waste (283)  and  generate 
revenues (284).  More 
specifically, 
additional 
assuming a hypothetical tax on waste incineration 
of  EUR 8.1/Mt  in  scenario  B  or  EUR 19.5/Mt  in  a 
more ambitious scenario A, Germany could achieve 
a decrease in waste incineration of around 8.3% in 
scenario  B  and  20%  in  scenario  A  by  2030. 
Equivalent monetary gains would be estimated at 
EUR 5.85 million  or  EUR 12.2 million  respectively 
(Figure 1). 

Germany has seen a significant improvement 
in  waste  management.  At  1.6%,  Germany 
reported  limited  landfilling  of  municipal  waste  as 
compared  with  the  EU  average  (21.3%)  in  2024. 
This was a slight decrease from 2010 (1.3%). The 
incineration  rate  decreased  to  31.5%  between 
2010  and  2024 (285).  The  fact  that  waste  from 
mechanical  biological 
is 
landfilled but  reported  as incinerated implies  that 
the  actual  landfill  rate  might  be  higher  than 
reported.  There  is  no  tax  on  municipal  waste 
incineration  in  Germany,  but  there  is  a  ban  on 

treatment  outputs 

(282) European Commission: Directorate-General for Environment, 
Camboni, M., Markandya, A., Tyrer, D., Goonesekera, S. et al., 
Greening the European Semester – Resource and pollution 
taxes. Annex 6, Country factsheets, Publications Office of the 
European Union, 2026, 
https://data.europa.eu/doi/10.2779/7798318. 

(283) An average of 25% less municipal waste can be achieved 

when a ’pay-as-you-throw’ system is applied, (Dornbusch, H. 
J., et al., 2020, Vergleichende Analyse von 
Siedlungsrestabfällen aus repräsentativen Regionen in 
Deutschland zur Bestimmung des Anteils an Problemstoffen 
und verwertbaren Materialien – Abschlussbericht, UBA Texte 
No 113/2020, Umweltbundesamt, Deassau-Rosslau, 2020, 
https://www.umweltbundesamt.de/sites/default/files/medien/
479/publikationen/texte_113-
2020_analyse_von_siedlungsrestabfaellen_abschlussbericht
.pdf). 

(284) EEA, Early warning assessment related to the 2025 targets 

for municipal waste and packaging waste. 
https://www.eea.europa.eu/en/analysis/publications/many-
eu-member-states/early-warning-assessment-related-to-
the-2025-targets-for-municipal-waste-and-packaging-
waste/germany. 

(285) Eurostat, Municipal waste by waste management operations, 
https://ec.europa.eu/eurostat/databrowser/view/env_wasmun/
default/table?lang=en. 

82 

 
 
 
landfilling  waste  with  a  total  organic  carbon  rate 
above 3% (286). 

Extended  producer  responsibility  schemes 
are  well  developed  in  Germany.  There  are  six 
schemes  in  operation  for  oils,  packaging,  paper, 
tyres,  batteries,  electronic  waste,  end-of-life 
vehicles,  plastic  fishing  gear  and  single-use 
plastics (287). 

Finally,  in  order  to  achieve  its  circular  economy 
objectives,  Germany’s  total 
investment  needs 
amount  to  EUR 42 billion  per  year,  especially  for 
circular  economy  measures 
in  the  areas  of 
mobility, food and the built environment (288). 

Bioeconomy industry 

In  Germany,  bioeconomy  value  added  has 
grown  slightly  more  than  domestic  GDP  in 
recent years, driven in particular by the food 
and  beverages  and  bio-based  chemicals  and 
plastics  subsectors.  Among  the  bioeconomy 
subsectors,  food  and  beverages  is the sector  that 
registered  the  highest  growth  in  value  added 
(4.5%  on  average  between  2018  and  2023) 
(289) (290). This growth reflects Germany’s role as a 
major  agri-food  processing  hub,  benefiting  from 
robust domestic demand and strong export activity 
the  EU.  While  overall  bioeconomy 
across 
employment  has 
slightly,  bio-based 
fallen 
chemicals  and  plastics  registered  the  highest 
growth  in  total  employment  between  2018  and 
2023 (2.8%) (291). 

(286) EEA, Early warning assessment related to the 2025 targets 

for municipal waste and packaging waste, 2025, 
https://www.eea.europa.eu/en/analysis/publications/many-
eu-member-states/early-warning-assessment-related-to-
the-2025-targets-for-municipal-waste-and-packaging-
waste. 

(287) LIFE4EPR mapping tool, https://life4epr.ent.cat/. 

Labour  productivity  in  the  bioeconomy  – 
measured  as value  added  per person  employed  – 
stood  at  87.9%  of  the  national  average  and  has 
been growing from 80.5% in 2018 (292). 

in  Germany,  R&D  business 
Furthermore, 
expenditure 
bioeconomy-relevant 
from 
subsectors  has  grown  at  a  significantly 
faster  pace  than  overall  R&D  business 
expenditure  (6.9%  compared  with  3.8%  on 
average  between  2018  and  2023) (293).  This 
above-average  R&D  investment  signals  growing 
bioeconomy 
confidence 
private 
innovation  and  is  in  line  with  Germany’s  broader 
national  bioeconomy  strategy,  which  emphasises 
the 
in 
accelerating  the  transition  to  sustainable,  bio-
based production systems (294). 

research  and  digitalisation 

role  of 

sector 

in 

Zero-pollution industry 

through 
tighter 

Over  the  past  decade,  Germany  has  made 
in  reducing  key  air 
significant  progress 
energy 
pollutants 
production, 
emission 
standards  and  improvements  in  industrial 
technology.  Emissions  of  several  air  pollutants 
have  decreased  significantly  in  Germany  since 
2005 despite a continued increase in GDP (295). 

cleaner 
vehicle 

Despite  this  progress,  Germany  continues  to 
grapple with significant air pollution costs. In 
2022, it ranked among Europe’s worst performers, 
with  multiple  air  quality  zones  exceeding  the 
ozone 
costs 
targets,  and  annual  damage 
estimated at EUR 192 million for ozone alone (296). 

(292) Ibid. 

(293) Joint Research Centre, Business expenditure in Research and 

Development (R&D) in the EU bioeconomy, 
https://datam.jrc.ec.europa.eu/datam/mashup/BERD_BIOECO
NOMY/,. 

(288) European Commission, Environmental Implementation 

(294) Federal Government of Germany (2020), National 

Review (2025), Germany country report, 
https://environment.ec.europa.eu/law-and-
governance/environmental-implementation-review_en. 

(289) Bioeconomy subsectors: food and beverages; bio-based 

textiles; wood products and furniture; bio-based chemicals 
and plastics. 

(290) Joint Research Centre, Developments of Economic Growth 
and Employment in Bioeconomy Sectors across the EU, 
https://datam.jrc.ec.europa.eu/datam/mashup/BIOECONOMIC
S/. 

(291) Ibid. 

Bioeconomy Strategy, Federal Ministry of Education and 
Research (BMBF) and Federal Ministry of Food and 
Agriculture (BMEL), available at: National Bioeconomy 
Strategy. 

(295) European Commission, Environmental Implementation 

Review (2025), Germany country report, 
https://environment.ec.europa.eu/law-and-
governance/environmental-implementation-review_en. 

(296) European Commission: Directorate-General for Environment, 
EMRC, Logika Group and RPA Europe; Update of the costs of 
not implementing EU environmental law (2025), 
https://op.europa.eu/en/publication-detail/-

83 

 
 
 
 
volatile 

Meanwhile, 
the  other  main  air  pollutants 
organic 
(ammonia, 
non-methane 
compounds,  sulfur  dioxides,  NOx  and  PM2.5)  are 
estimated  to  create  annual  costs  of  as  much  as 
EUR 91 billion (297).  This  underscores  the  need  for 
further action, particularly in industrial regions and 
urban 
European 
corridors. 
Environment Agency (EEA) estimates point to 371 
years  of 
inhabitants 
lost  per  100 000 
to  PM2.5 
to  air  pollution  due 
attributable 
concentrations  that  exceed  the  World  Health 
Organization’s air quality guideline levels (298). 

transport 

The 

life 

Furthermore,  no  new  taxes  on  major  air 
pollutants  such  as  NOx,  SO₂  or  particulate 
matter  have  been  implemented  in  the  same 
period (299).  Introducing  a  pollution  tax  system 
could 
these  pollutants  by  7-30%, 
depending on the tax rate, while generating up to 
EUR 190 million in revenue by 2030 (300). 

reduce 

Water pollution from industry also remains a 
critical  challenge.  Positive  developments  for 
water  pollution 
include  a  38% 
in  Germany 
industrial  heavy  metal  releases 
reduction 
(cadmium,  mercury,  nickel  and  lead)  and  a  28% 
drop  in  total  organic  carbon  emissions  to  water 
since  2010,  as  reported  under  the  Industrial 
Emissions  Directive (301).  However,  100%  of 

in 

/publication/4dead000-263d-11f0-8a44-
01aa75ed71a1/language-
en?mc_cid=d30edf72a9&mc_eid=3bdab86db2. The 
damage cost is calculated in terms of value of a life-year 
(VOLY). 

(297) European Commission: Directorate-General for Environment, 
IEEP, Green taxation and other economic instruments – 
Internalising environmental costs to make the polluter pay, 
2021, https://environment.ec.europa.eu/publications/green-
taxation-and-other-economic-instruments-internalising-
environmental-costs-make-polluter-pay_en. 

(298) EEA, 2025, Harm to human health from air pollution in 

Europe: burden of disease status, 2025, 
https://www.eea.europa.eu/en/analysis/publications/harm-to-
human-health-from-air-pollution-burden-of-disease-status-
2025. 

(299) European Commission: Directorate-General for Environment, 
Camboni, M., Markandya, A., Tyrer, D., Goonesekera, S. et al., 
Greening the European Semester – Resource and pollution 
taxes. Annex 6, Country factsheets, Publications Office of the 
European Union, 2026, 
https://data.europa.eu/doi/10.2779/7798318. 

(300) Ibid. 

(301) EEA, Water pollutant releases changes from 2010 to 2022 

for the EU Member States, 2024, 

84 

Germany’s  surface  water  bodies  is  still  failing  to 
achieve good chemical status due to the presence 
of  ubiquitous,  persistent,  bio-accumulative  and 
toxic  substances  (uPBTs) (302)  that  often  result 
from  past  industrial  activities.  Water  pollution  by 
industry  imposes  direct  and  indirect  costs  of 
EUR 72 million  annually (303),  not  yet  sufficiently 
borne by the polluters. 

and 

industrial 
The  total  economic  cost  of 
pollution  in  Germany  is  EUR 95 billion  per 
year  –  encompassing  healthcare  expenses,  lost 
environmental 
productivity 
degradation (304)(305).  Yet,  investment  still  falls 
short.  To  meet  national  and  EU  targets  for 
pollution  prevention  and  control,  Germany  would 
need  to  spend  an  additional  EUR 9.4 billion  per 
year  (about  0.24%  of  GDP),  largely  focused  on 
improving  air  quality  –  particularly  in  industrial 
regions and urban transport corridors (306). 

https://www.eea.europa.eu/en/analysis/maps-and-
charts/water-pollutant-releases-3. 

(302) European Commission. Third River Basin Management Plans 
Second Flood Hazard and Risk Maps and Second Flood Risk 
Management Plans Member State: Germany, February 2025, 
https://op.europa.eu/en/publication-detail/-
/publication/3c606531-e394-11ef-be2a-
01aa75ed71a1/language-en. 

(303) European Commission: Directorate-General for Environment, 
IEEP, Green taxation and other economic instruments – 
Internalising environmental costs to make the polluter pay, 
2021, https://environment.ec.europa.eu/publications/green-
taxation-and-other-economic-instruments-internalising-
environmental-costs-make-polluter-pay_en. 

(304) European Commission: Directorate-General for Environment, 
Camboni, M., Markandya, A., Tyrer, D., Goonesekera, S. et al., 
Greening the European Semester – Resource and pollution 
taxes. Annex 6, Country factsheets, Publications Office of the 
European Union, 2026, 
https://data.europa.eu/doi/10.2779/7798318. 

(305) EEA, The costs to health and the environment from industrial 

air pollution in Europe – 2024 update, 2024, 
https://www.eea.europa.eu/en/analysis/publications/the-
costs-to-health-and-the-environment-from-industrial-air-
pollution-in-europe-2024-update. The costs reported are 
calculated in terms of value of a statistical life (VSL). 

(306) European Commission: Directorate-General for Environment, 
EMRC, Logika Group and RPA Europe; Update of the costs of 
not implementing EU environmental law (2025), 
https://op.europa.eu/en/publication-detail/-
/publication/4dead000-263d-11f0-8a44-
01aa75ed71a1/language-
en?mc_cid=d30edf72a9&mc_eid=3bdab86db2. 

 
 
 
 
 
 
 
Table A8.1:  Key clean industry and climate mitigation indicators: Germany 

Sources and notes: Industry decarbonisation: All data are from Eurostat; data following the UNFCCC Common Reporting 
Format (CRF) are from the European Environment Agency (EEA), republished by Eurostat. (1) Sectors covered: all divisions of 
section C - Manufacturing - of the NACE Rev. 2 statistical classification of economic activities, except C19 (manufacture of coke 
and refined petroleum products). (2) GHG emissions as per UNFCCC Common Reporting Framework (CRF) categories 1.A.2 - fuel 
combustion in manufacturing in industries and construction (that broadly correspond to the broadly correspond to the NACE 
sections C - Manufacturing and E - Construction, excluding C-19),  and CRF2 - industrial processes and product use. The figures 
shows the emissions in the 1.A.2 category as a share of the sum of CRF1.A.2. and CRF2 emissions. (3) Sectors covered: CRF 1.A.2 
as described above. Gross value added (GVA) data in the denominator aligned in sectoral coverage, in 2020 prices. (4) Sectors 
covered: NACE section C excluding C19. (5) Nominator: NACE divisions C17, 20, 23, 24; denominator: NACE section C excluding 
C19 (see above). (6) GVA (denominator) in 2020 prices. Reduction of effort sharing emissions: Data source: European 
Environment Agency, greenhouse gas data viewer; European Commission, Climate Action Progress Report, 2025. For details, see 
the footnote in the "Reduction of effort sharing emissions" section. Sustainable road transport: (7) Source: Eurostat; (8) Source: 
European Alternative Fuels Observatory; (9) Source: Eurostat. For all climate mitigation indicators, the trend arrows compare the 
latest available data (year t) with the data four years earlier (t-4). Sustainable industry: Bioeconomy value added, employment 
and productivity: JRC, Developments of Economic Growth and Employment in Bioeconomy Sectors across the EU. Bioeconomy 
R&D business expenditure: JRC, Business expenditure in Research and Development (R&D) in the EU bioeconomy. Damage cost for 
industrial pollution: EEA, The costs to health and the environment from industrial air pollution in Europe, 2024. Water industrial 
pollutants releases: EEA, Industrial releases of pollutants to water and economic activity in the EU-27, 2024. Water chemical 
status: WISE, Surface water bodies: Chemical status, 2024 and WISE Groundwater bodies: chemical status, 2024. Other indicators: 
Eurostat. For circular economy indicators, the trend arrows compare the latest available data (year t) with the data two years 
earlier (t-2). 

85 

Climate mitigationTrendIndustry decarbonisation201820192020202120222023202420182023GHG emissions intensity of manufacturing production, g/€ (1)247243255244218207-330-Share of energy-related emissions in industrial GHG emissions (2)66.266.967.968.268.569.2-55.557.9Energy-related GHG emissions intensity of manufacturing and construction, g/€ (3)175.6174.1184.9176.6158.4151.3-203.9163.0Share of electricity and renewables in final energy consumption in manufacturing, % (4)39.539.438.238.638.938.541.042.843.9Energy intensity of manufacturing, GWh/€ (4)0.900.880.950.890.820.780.791.271.05Share of energy-intensive industries in manufacturing production, % in GVA (5)14.8214.6115.4714.3014.7114.47---GHG emissions intensity of production in sector [...], g/€ (6)- paper and paper products (NACE C17) 687          681          711                 741            726                   639           -722             619             - chemicals and chemical products (NACE C20) 715          692          677                 679            681                   641           ---- other non-metallic mineral products (NACE C23) 1,703        1,743       1,919               1,762         1,665                1,924         -2,495           2,352          - basic metals (NACE C24) 2,845        2,856       2,859               3,751         3,162                2,735         -2,842           3,099          Reduction of effort sharing emissions201820192020202120222023202420182023GHG emission reductions relative to base year, % -16.5-18.9-21.4-22.6- domestic road transport6.45.7-5.5-6.5-4.4-6.3-7.6-1.4-5.6- buildings-24.8-21.1-20.8-22.6-28.0-32.6-34.0-20.3-33.520052021202220232024TargetWEMWAMEffort sharing: GHG emissions, Mt; target, gap, %484.7404.9393.1380.8375.3-50.0%-36.4%-36.8%Sustainable road transport2018201920202021202220232024202520182021New zero-emission vehicles, electricity motor, % (7)1.051.756.6513.5817.7518.4313.511.038.96Number of publicly accessible AC/DC charging points (8)--411995797483816120612159958200830446956n/aShare of electrified railways, % of total (9)52.8953.5554.0254.5854.8454.8555.2555.4756.49Sustainable industryTrendEU-27Circular economy transition20182019202020212022202320242018latest dataMaterial footprint, tonnes per person15.715.514.815.214.612.311.714.813.7Circular material use rate, %12.1          12.5          12.9                 12.3           12.6                  14.5           14.811.612.2Resource productivity, €/kg2.8            3.0            3.0                   3.1             3.5                    4.1             4.42.13.0Employees in circular economy1.7            1.71.7                   1.7             1.6                    1.7             -2.12.0Patents in circular economy85.04117.6        137.6               78.9           12.312.0Recycling rate           67.1           66.7                  70.3             71.4                    69.6             68.7 66.9            46.4048.1Plastic recyling 47%43%46%48%51%52%-41%42%Construction and demolition waste (CDW) recovery 93-948889Bioeconomy industry 2018201920202021202220232024CAGR 2018-202320182023Value added, million EUR117,984127,533124,745132,635156,808156,732-4.8%642,438863,436Employment, total number of people employed2,141,8802,165,2812,096,0802,099,3112,128,7622,124,481--0.1%17,649,04017,085,642ProductivityValued added per worker, thousand EUR55.158.959.563.273.773.8-5.0%36.450.5Valued added per worker, % of national average80.584.486.386.493.687.9-1.5%62.270.7R&D business expenditureTotal bioeconomy (biomass producing and converting sectors)3,9053,9414,0575,8076,4215,8366.9%15,67223,335Total R&D business expenditure72,10175,83071,03275,76181,80990,408-3.8%196,587259,525Zero pollution industry201820192020202120222023202420182021Damage cost for industrial pollution110.292.184.794.6---414.9352.7Water industrial pollutants releases 2021change (2010)2021change (2010)2021change (2010)2021change (2010)28,873      -30%34,541,300      -26%3,128,000         -31%1,170,400    -37% Water chemical statusGood-                  Good (%)-                   Poor9744.0Poor (%)100%EUTOCPhosporusGermanyGermanyCd, Hg, Ni, Pbnitrogen 
 
  
 
ANNEX 9: AFFORDABLE ENERGY TRANSITION 

This  annex  outlines  the  progress  made  and 
the  ongoing  challenges  faced  in  increasing 
energy  affordability,  while  advancing  the 
transition 
the 
implementation  of  past  energy-related  country-
specific recommendations. 

to  net  zero. 

reflects 

It 

Germany’s  2025  energy-related  country 
specific  recommendations  highlighted  the 
need to further reduce overall dependency on 
fossil  fuels  while  facilitating  the  expansion 
of  renewable  energy.  They  also  called  for 
investment  to  focus  on  efficient  and  integrated 
energy  systems, 
including  by  upgrading  the 
electricity  network  and  by  ensuring  cost-efficient 
expansion and flexibility to support the integration 
of  renewable  energy  and  to  adapt  to  fluctuating 
demand  and  supply  so  as  to  meet  increased 
balancing  needs.  In  addition,  they  recommended 
accelerating  the  process  of  decarbonising  the 
buildings sector. 

Germany  continues  making  progress 
in 
renewable  energy  expansion,  particularly  in 
solar  and  onshore  wind,  but  the  deployment 
of  renewables  in  heating  and  cooling  and  in 
transport  was  stagnant  and  the  permitting 
process  is  still  not  fully  digitalised.  Germany 
is  expanding  its  electricity  grid,  while  prioritising 
cost-efficient expansion in line with system needs. 
But  challenges  remain  such  as  grid  congestion, 
scaling  up  system  flexibility  or  digitalisation  of 
electricity  networks,  particularly  at  distribution 
level, to drive Germany’s clean energy transition.  

Energy prices and costs 

Despite  major  government  intervention  over 
the last year to lower household energy bills, 
both gas and electricity household consumer 
prices  in  Germany  remained  above  the  EU 
average,  while  non-household  retail  gas 
prices  were  unchanged  and  non-household 
electricity  prices  remained  above  the  EU 
average.  

During  the  first  half  of  2025,  household 
in  Germany  decreased 
electricity  prices 
slightly on 2024, while remaining the highest 
in 
the  EU,  at  EUR 0.3835/kWh,  and 
significantly above the EU average. Household 

gas  prices  increased  to  EUR 0.1216/kWh,  slightly 
above  the  EU  average.  Retail  electricity  prices  for 
industrial  consumers  followed  similar  trends  and 
were  again  above  the  EU  average.  Gas  prices  for 
non-household consumers remained  stable and in 
line with the EU average. Importantly, final energy 
prices  in  Germany  during  the  first  half  of  2025 
showed  a  very  high  electricity-to-gas  price  ratio. 
For  large  businesses,  electricity  was  3.3  times 
more  expensive  than  gas  during  the  first  half  of 
2025  with  taxes  and 
levies  (excluding  VAT) 
accounting  for  17%  of  total  electricity  bills  and 
20%  of  total  gas  bills  (307).  Excluding  taxes  and 
levies, the electricity-to-gas price ratio would have 
increased  to  3.4.  For  household  consumers,  the 
impact of taxes and levies on the electricity-to-gas 
price ratio would be virtually non-existent, as they 
account for 32% of both, electricity and gas prices 
(308).  

reduced 

for  all 
it 

In  2026,  Germany  introduced  the  following 
energy  price  measures:  i)  it  abolished  the  gas 
storage levy for all consumers (EUR 3.4 billion); ii) 
it 
consumers 
reduced  grid 
fees 
tax  on 
iii) 
(EUR 6.5 billion/year); 
electricity  to  the  EU  minimum  for  manufacturing, 
agriculture  and  SMEs  (EUR 3.0 billion/year);  iv)  it 
subsidised  the 
‘industrial  electricity  price’  for 
industry,  (EUR 3-5  billion/year 
energy-intensive 
until  end  of  2028);  and  v)  it  continued  financing 
taxes  and  levies  on  renewables  from  the  federal 
budget  to  reduce  electricity  costs,  particularly  for 
households. 

(307) It is important to note that the fiscal component of the 

industrial electricity bill might change from 2026 onwards as 
the German government has decided to lower excise duty 
rates for some energy-intensive industrial sectors and to 
remove the gas storage levy due to a higher carbon tax on 
gas. 

(308) Analysis based on S1 2025 Eurostat data. 

86 

 
 
 
 
 
Graph A9.1: Electricity and gas prices for 
household and non-household consumers, first 
half of 2025 

demand hours. This is because low solar output in 
the  evening  and  early  morning  combined  with 
limited  non-fossil  flexibility  require  gas  fuelled 
thermal plants to significantly ramp up generation 
to cover the supply–demand gap. As a result, price 
spreads(311)  in  Germany  averaged  EUR 122/MWh 
in 2025, up 14% from 2024, nearly matching the 
EU average. 

Graph A9.2: Low-carbon electricity generation vs. 
electricity wholesale prices, 2025 

(i) For household consumers, the consumption band is DC for 
electricity and D2 for gas. 
(ii) For non-household consumers, the consumption band is ID 
for electricity and I4 for gas. VAT and recoverable charges are 
not displayed for non-household consumers as these are 
typically recovered by businesses. This also applies to the ‘% 
of taxes and levies’, which is shown excluding VAT and 
recoverable charges for non-household consumers. 
(iii) ‘Without taxes and levies’ indicates the retail price 
excluding all taxes and levies. It always includes the 
energy/supply and network cost components, which are not 
disaggregated in Eurostat’s six-monthly price dataset. 
Source: Eurostat 

bidding 

Due  to  continued  reliance  on  fossil  fuels for 
electricity  generation  and  limited  non-fossil 
flexibility,  wholesale  electricity  prices  in  the 
zone 
German-Luxembourgish 
averaged  90 EUR/MWh  in  2025,  exceeding 
the EU average of 85 (309). Despite renewables 
accounting for over 56.4% of electricity generation 
in  Germany  in  2025,  natural  gas  maintained  its 
structural  role  as  the  dominant  marginal  price-
setter, keeping costs elevated. Average day-ahead 
electricity  prices  increased  by  15%  in  2025  amid 
rising  natural  gas  procurement  costs  and 
heightened electricity demand. Short-run marginal 
costs (310) of natural gas in the EU increased from 
EUR 96/MWh  in  2024  to  nearly  EUR 103/MWh  in 
2025.  Although  daytime  electricity  prices  have 
fallen 
to  growing 
incorporation  of  solar  power,  Germany  remains 
vulnerable  to  severe  price  spikes  during  peak-

recent  years  owing 

in 

(309) Source: Ember. 

(310) Short run marginal costs (SRMC) are the sum of the variable 
costs associated with producing electricity using hard coal 
and fossil gas. These are fuel costs, carbon costs and 
variable operating and maintenance costs. Estimates are 
provided by Ember. 

Unavailable data for Cyprus and Malta. Wholesale price is 
given as average of day-ahead electricity prices over 2025. 
EU-27 average is calculated as consumption-weighted. EU 
low-carbon share is calculated out of total EU electricity 
generation. Low-carbon share by country is calculated out of 
total public electricity generation. Low-carbon includes 
renewables and nuclear. 
Source: Eurostat 

Flexibility and electricity grids 

Germany is making progress in expanding its 
electricity grid and intends to prioritise cost-
efficient expansion in line with system needs. 

capacity 

Germany  belongs  to  both  the  Core (312)  and 
Hansa (313) 
regions 
(CCRs) (314).  The  Hansa  CCR  has  high  trade 
capacity  overall,  while  the  Core  CCR  offers  lower 
trade capacity. As of 1 January 2026, EU Member 

calculation 

(311) Spread refers to the difference between the highest and 
lowest hourly day-ahead electricity prices in a single day. 

(312) Core  is  the  capacity  calculation  region  (CCR)  which  covers 
Belgium,  Czechia,  Germany,  France,  Croatia,  Hungary,  the 
Netherlands,  Austria,  Poland,  Romania,  Slovenia,  Slovakia 
(and, once connected, Ireland).  

(313) The Hansa CCR includes Denmark, Germany, the Netherlands, 

Poland and Sweden. 

(314) A  CCR  is  a  group  of  countries  that  calculate  cross-border 

electricity trade flows together. 

87 

 
 
 
 
 
States  must  ensure  that  a  minimum  of  70%  of 
technical  cross-border  capacity  is  available  for 
trading. Germany has implemented an action plan 
to  reach  the  70%  threshold  by  31  December 
2025. In line with the findings of the bidding zone 
review  report  by  the  European  Network  of 
Transmission  System  Operators  for  Electricity, 
Germany  has  issued  a  second  action  plan  setting 
out  measures to  further  reinforce  its  grid(315)  and 
increase cross-border electricity trading.  

highest level of non-fossil flexibility deployment in 
the  EU  (around  9  GW),  followed  by  Italy  (also 
9 GW) and Spain (7 GW). The dominant technology 
is  mechanical  storage  (7  GW).  Electrochemical 
storage, with 2 GW installed capacity,  is expected 
substantially.  Almost  9  GW  of 
to  grow 
electrochemical  storage  projects  have  been 
announced,  and  almost  2  GW  are  either  under 
construction or have been granted a permit. 

is 

actively 

recent  example 

is 
to  construct 

Germany 
engaging  with 
neighbouring  countries  to  develop  new 
its 
interconnections.  A 
agreement  with  Denmark 
the 
Bornholm  Energy 
(European  Highway), 
concluded at the North Sea summit in Hamburg in 
January  2026.  This  will  be  the  world’s  largest 
cross-border  energy  transition  project,  which  is 
expected  to  feed  3 GWs  of  offshore  wind  energy 
into the European grid.  

Island 

is 

2026, 

renewable 

generation  which 

electricity 
Germany’s 
As 
of 
interconnection 
9.37%, 
level 
demonstrating the continued rapid expansion 
of 
is 
outstripping growth in available cross-border 
capacity.  Germany  is  continuing  to  expand  its 
transmission  and  distribution  grid  and  expects  to 
meet  the  EU’s  target  of  15%  interconnection 
capacity  by  2030.  At  present,  Germany  has  128 
covering 
ongoing 
16 800 km(316),  of  which  16%  are  operational, 
31% under construction and 41% in the permitting 
stage.  Germany  has  made  progress  on  new 
its 
synchronisation  measures,  has  amended 
the  Grid  Expansion 
legislation, 
Acceleration  Act 
is  nationally 
implementing 
revised  Renewable  Energy 
Directive  (RED  III)  in  the  grid  sector  to  accelerate 
and 
expansion  and  better 
synchronise this with renewable energy expansion.  

increase  grid 

(NABEG),  and 

specifically 

expansion 

projects 

the 

In  2023,  Germany  launched  its  electricity 
storage  strategy  to  support  the  market-
driven  expansion  of  electricity  storage.  This 
strategy  addresses  issues  such  as  licensing,  grid 
fees and accelerated connection. Germany has the 

(315) Source: as per Frauenhofer Institute, Germany curtailed 

approximately 6.7TWh, up to September 2025 due to grid 
bottlenecks. 

for 

include 

discounts 

Germany’s regulatory framework is a barrier 
to demand-side flexibility and storage due to 
disincentives  in  the  grid  fee  structure  and 
problems  with  grid  connections.  These 
disincentives 
large 
consumers  with  steady  demand  (i.e.  industry). 
Germany has launched a working group to address 
this  and  has  created  a  roadmap  to  ramp  up 
dynamic tariffs. An initial proposal setting out new 
rules has been announced for mid-2026. Demand 
response and storage can play a part in helping to 
provide 
congestion 
services 
management.  Currently,  there  are  long  waiting 
times  for  storage  projects  to  be  connected. 
Germany  is  therefore  considering  adapting  its 
connection  rules  to  better  reflect  system  needs. 
Aggregators  can  participate  in  Germany’s  day-
ahead and intraday markets. 

ancillary 

and 

The  first  transmission  pipeline  (measuring 
400 km) in Germany’s hydrogen core network 
was  entered  into  operation  by  GASCADE  in 
2025.  Germany  is  part  of  various  hydrogen 
infrastructure projects involving EU Member States 
and  third countries.  They include i)  the  Iberian H2 
corridor  with  Portugal,  Spain  and  France;  ii)  the 
Southern  H2  corridor  with  Italy,  Austria,  Tunisia 
and  Algeria;  iii)  a  hydrogen  pipeline  with  Norway, 
resumed  after  its  cancelation  in  2024,  and  iv)  a 
cross-border pipeline with Denmark due to become 
operational in 2030. 

In  2024,  99%  of  households  had  regulated 
(unchanged 
fixed-price  energy  contracts 
since  2023),  which  limit  flexibility  and  lead 
to higher costs for consumers. Although smart 
flexibility, 
meters  are 
Germany’s  roll-out  has  been  very  slow.  As  of 
December 2025,  smart  meters  represented  only 
5.5%  of  all  meters,  and  around  23.3%  in  cases 
where smart meters are mandatory (317). Germany 

for  demand 

crucial 

(316) Netzausbau - Prognose zum Stromnetzausbau. 

(317) Source: Quarterly monitoring of the Bundesnetzagentur.  

88 

 
 
 
has  opted  to  incentivise  roll  out,  instead  of 
applying sanctions and will table a proposal in this 
regard in spring 2026. Households are increasingly 
becoming  prosumers.  In  2024,  7%  of  households 
were prosumers. 

ratio 

price 

In  2024,  electricity  accounted  for  22.8%  of 
final energy consumption (FEC) (below the EU 
average  of  23.4%),  a  share  which  has 
remained  largely  unchanged  over  the  last 
decade (318),  partly  due  to  an  unfavourable 
electricity-to-gas 
that 
disincentivises  electrification  and  cost-
effective  decarbonisation.  Electricity  accounts 
for 21.7% and 35.1% of household and industrial 
FEC  respectively  (see  Annex  8).  In  the  transport 
sector,  the  share  of  FEC  accounted  for  by 
electricity  remains  negligible  at  3.0%.  Further 
progress  in  electrification  across  sectors  would 
help  to  cost-effectively  decarbonise  the  economy 
and  bring  the  benefits  of  affordable  renewable 
generation to consumers. 

Renewables and long-term contracts 

in 
Germany  has  made  further  progress 
facilitating  the  expansion  of  renewables 
while  continuing  to  reduce 
its  overall 
dependency on fossil fuels.  

the 

Germany’s legal framework has enabled it to 
significantly  accelerate 
roll-out  of 
renewable  energy  installations  in  the  past 
two  years,  with  record  levels  of  permitting 
for  wind  and  grid  projects.  Challenges 
nevertheless  remain,  with  the  deployment  of 
renewables in heating and cooling and in transport 
largely  stagnant  in  2024  and  the  permitting 
process still not fully digitalised. 

In 2025, renewables accounted for 56.4% of 
the  electricity  mix 
(vs  an  overall  EU 
renewables  share  of  44.8%),  remaining 
essentially  stable  compared  to  the  previous 
year 
in  2024,  +0.1  percentage 
points),  due  to  unusual  weather  conditions 
levels.  Germany  had  an 
and 

lower  wind 

(56.3% 

including  106  GW  of  solar 

installed capacity of 200 GW of renewables(319) in 
(+16.5% 
2025, 
compared  to  2024),  68.1 GW  of  onshore  wind 
(+4.6 GW) and 9.7 GW of offshore wind (+0.5 GW). 
In  addition,  Germany  published  a  schedule  for 
significant  auction  volumes  for  onshore  and 
offshore  wind  and  solar  photovoltaic  energy  on 
the Union Renewable Development Platform (320) In 
offshore wind, Germany aims to expand to 30 GW 
by  2030,  40  GW  by  2035  and  70  GW  by  2045. 
Germany will be the largest wind offshore market 
in the EU.  

Graph A9.3: Germany’s installed renewable 
capacity vs electricity generation mix 

Electricity mix is given as net electricity generation (gross 
electricity production minus consumption of power stations’ 
auxiliary services). Electricity produced in pumped hydro 
plants is excluded from total net electricity production, as it 
was previously counted as electricity produced from another 
source. 
“Other” includes renewable municipal waste, solid biofuels, 
liquid biofuels, and biogas. 
Source: IRENA, Eurostat 

Germany  has  Europe’s  second  largest  power 
purchase  agreement  (PPA)  market  after 
Spain, with more than 11 077 GWh/y covered 
by  PPAs  between  2021-2025  based  on 
publicly  announced  projects  (108  deals  in 
total).  Nevertheless,  the  capacity  under  PPAs 
dropped  sharply  between  2023  and  2024,  from 
7 307 GWh to 3 920 GWh, although the number of 
deals  remained  stable  (36  deals  in  2023,  38  in 
2024).  

In  2024,  Germany  became  the  first  Member 
State to launch funding via carbon Contracts 
for Difference for SMEs and larger industrial 

(318) The  CAGR  (compound  annual  growth  rate)  was  0.35% 
between  2015  and  2024.  The  minimum/maximum  shares 
were 21.3% and 22.8%, respectively. (Source: Eurostat). 

(319) Renewable capacity statistics 2026.  

(320) Member  States  overview  |  Union  Renewable  Development 

Platform. 

89 

 
 
 
 
corporations in order to support and advance 
the decarbonisation of industry (321). 

Energy efficiency 

Germany  has  made  progress  in  accelerating 
the decarbonisation of buildings. 

through 

progress 

Overall, Germany made moderate progress in 
risks 
improving  energy  efficiency  but 
reversing 
legislation 
cementing  the  dominance  of  fossil  fuels  in 
residential  heating. 
In  2024,  final  energy 
consumption  (FEC)  decreased  by  1.1%  to  184.8 
Mtoe,  as  compared  to  2023,  continuing  the 
downward  trend  observed  since  2019.  Germany’s 
FEC  in  2024  is  thus  slightly  aligned  with  the 
trajectory  to  its  expected  contribution  in  2030.  A 
reduction in FEC has been observed in a number of 
sectors  between  2019  and  2024:  in  industry  by 
13.1%, mainly due to the economic downturn and 
reduced industrial output, in services by 13.8%, in 
transport by 11.5% and in the residential sector by 
10%.  This  overall  decline  reflects  continued 
efficiency 
improvements  reinforced  by  recent 
policy developments.  

In 2024, Germany began implementing the Energy 
Efficiency  Act  (EnEfG),  which  for  the  first  time 
establishes  a  binding,  cross-sectoral  framework 
with  concrete  energy-saving  obligations,  notably 
mandatory  energy  or  environmental  management 
systems  and  waste-heat  utilisation  requirements 
for large enterprises and data centres. At the same 
time,  Germany  is  investing  in  energy  efficient 
building  renovations  under 
its  recovery  and 
resilience  plan.  Moreover,  federal  funding  for 
energy  efficiency  and  decarbonisation  has  been 
consolidated and expanded under the Climate and 
Transformation  Fund  (KTF),  providing  grants  and 
concessional  financing  for  building  renovations, 
industrial efficiency measures and SMEs.  

into  operation,  with 

In  2025,  these  instruments  were  brought 
increased 
further 
emphasis on implementation, compliance and 
monitoring,  alongside  continued  support  for 
high-efficiency  buildings  and  technologies 

building 

revamped 

through 
renovation 
schemes.  While  recent  trends  confirm  tangible 
progress  across  all  sectors,  sustaining  and 
accelerating  such  efficiency  gains  will  depend  on 
these  measures  being  effectively  rolled  out  and 
taken  up  at  scale.  Most  notably,  the  government 
has  agreed  to  revise  the  Gebäudeenergiegesetz, 
now  renamed  the  Gebäudemodernisierungsgesetz 
(Building  Modernisation  Act),  removing  earlier 
requirements  for  climate-friendly  heating  and 
allowing  the  installation  of  gas  and  oil  boilers  in 
residential  buildings(322).  This  change  risks  locking 
consumers into fossil-fuel based heating systems, 
exposing  them  to  fluctuating  oil  and  gas  prices, 
and slowing the rollout of heat pumps. 

The  decline  in  FEC  in  the  residential  sector 
was  mostly  driven  by  changes  in  heating 
behaviour,  such  as  the  optimisation  of 
household  temperature  settings  and  other 
technical  savings.  Nevertheless,  the  climate,  in 
particular  colder  winters  and  hotter  summers,  as 
well  as  an  expansion  of  the  housing  stock, 
increased  energy  consumption.  Germany’s  11.2% 
reduction  in  residential  FEC  between  2019  and 
2024  is  not  in  line  with  its  2020  long  term 
renovation  strategy,  which  set  an  objective  of  a 
39%  reduction  in  energy  consumption  between 
2018 and 2030. 

important  role 

Given  that  buildings  are  responsible  for 
40.3%  of  energy  use  in  Germany,  they  play 
an 
improving  energy 
in 
efficiency.  Therefore,  Germany  is  encouraged  to 
submit  its  draft  national  building  renovation  plan 
pursuant to the recast of the Energy Performance 
of  Buildings  Directive  to  ensure  a  clear  and 
predictable  pathway  towards  an  energy-efficient 
and decarbonised building stock. 

final 

residential 

Heating  and  cooling  account  for  83%  of 
Germany’s 
energy 
consumption, with renewables supplying 17% 
of  total  energy  consumed  for  heating  and 
cooling  across  all  sectors.  Over  14  million 
households  rely  on  gas  boilers  for  heating,  while 
another  5 million  households  use  oil  boilers. 
Approximately  230 000  heat  pumps  were  sold  in 
2024,  a  decrease  of  48%  compared  to  the 
previous year, taking Germany’s total stock of heat 
in 
pumps 

to  around  2 275 000.  Electricity 

(321) BMWK,  2024,  Carbon  contracts  for  difference  announced, 

bmwk.de. 

(322) Source: BMWE. 

90 

 
 
 
Germany was 3.15 times more expensive than gas 
during the first half of 2025. This means that end 
users  who  choose  a  heat  pump  over  a  gas  boiler 
save energy but end up paying more. 

Germany’s  district  heating  systems,  e.g.  in 
Munich,  are  among  the  leading  examples  in 
Europe  for  incorporating  energy  efficiency 
into  the 
and  decarbonisation  measures 
district  heating  and  cooling  sector.  Under  its 
recovery and resilience plan, Germany is investing 
in  efficient  heat  networks  for  district  heating, 
supported  to  a  large  extent  by  renewable  energy 
and waste heat. 

Security of supply and diversification   

Germany  is  actively  working  to  diversify 
away from Russian gas. Since the end of 2022, 
Russian  gas  has  been  gradually  replaced  by 
pipeline  gas  (from  Belgium,  the  Netherlands  and 
Norway)  and  LNG  (mainly  from  the  US)  imported 
through  floating  storage 
regasification  units 
(FSRUs).  The  state-owned  Deutsche  Energy 
Terminal  GmbH  operates  three  FSRUs,  one  in 
Brunsbüttel  and  two  in  Wilhelmshaven.  A  further 
FSRU  is  privately  run  in  Mukran.  Moreover,  an 
additional  FSRU  is  set  to  become  operational  in 
Stade in 2026. In 2025, Germany imported a total 
of  10.1  bcm  of  LNG,  of  which  the  vast  majority 
(92%) came from the US. 

for  37%  of  gross 

Despite  making  progress 
in  deploying 
renewables, Germany’s overall energy mix in 
2024  was  still  heavily  based  on  fossil  fuels. 
inland 
Oil  accounted 
consumption,  natural  gas  for  26%  and  coal  for 
15%.  Renewables  (including  biofuels)  accounted 
for  20% (323).  Germany’s  reliance  on  fossil  fuels 
underscores the importance of  its ongoing energy 
transition  efforts  in  order  to  diversify  energy 
sources and strengthen energy security. 

In  response to  rising  energy prices  following 
the  regional  crisis 
in  the  Middle  East, 
Germany  has  coordinated  the  IEA  collective 
action  to  release  400  million  barrels  of 
emergency 
contributing 
approximately  2.64  million  tonnes,  and 
implemented  measures  to  limit  fuel  price 

reserves, 

oil 

increases  to  once  daily  at  petrol  stations, 
with  fines  up  to  €100 000  for  violations.  An 
additional measure includes a 17-cent reduction in 
fuel tax. Germany has also strengthened antitrust 
oversight to combat excessive pricing.  

Fossil fuel subsidies 

2030 

In  2024,  environmentally  harmful  (324)  fossil 
fuel  subsidies  without  a  planned  phase-out 
of 
before 
Germany’s  GDP (325).  Additionally,  Germany’s 
Effective  Carbon  Rate  averaged  EUR 96.85  per 
tonne of CO₂ above the EU weighted mean of EUR 
84.80 (326)(327). 

represented 

0.28% 

(324) Explicit fossil fuel subsidies (e.g. direct transfers) and implicit 
fossil fuel subsidies (i.e. tax expenditures linked to forgone 
tax revenues that have an identifiable fiscal impact for the 
central budget) that support fossil fuel energy production, 
transmission and/or consumption.  

(325) European Commission calculation based on underlying data 
from the Study on energy subsidies and other government 
interventions in the EU – 2025 edition, Enerdata. 

(326) OECD,2024, Pricing Greenhouse Gas Emissions 2024. 

(323) Source: Eurostat. Electricity and heat are excluded from gross 
inland consumption to avoid double-counting. The focus is on 
primary energy sources. 

(327) The Effective Carbon Rate is the sum of carbon taxes, ETS 
permit prices and fuel excise taxes, representing the 
aggregate effective carbon rate paid on emissions. 

91 

 
 
 
 
 
ANNEX 10: CLIMATE ADAPTATION, PREPAREDNESS AND ENVIRONMENT 

for 

its 

has 

exposure 

advanced 

needs 
restoration; 

Germany 
climate 
adaptation  policies  with  the  Federal  Climate 
Adaptation  Act  but  faces  challenges  on 
include  significant 
resilience.  Vulnerabilities 
and 
infrastructure 
investment 
ecosystem 
to 
and 
heatwaves,  wildfires  and  flooding  (particularly  in 
coastal  areas).  Insurance  coverage  for  natural 
disasters  remains  inadequate,  posing  economic 
risks.  Water  scarcity  is  especially  pronounced  in 
northern  regions  but  can  be  addressed  by 
improving  water  management  and  infrastructure 
investment. Efforts to restore natural habitats are 
ongoing  but  are 
impeded  by  widespread 
degradation and funding shortfalls. Effective policy 
implementation  would  benefit  from  strengthened 
governance coordination and enhanced capacity at 
sub-national 
to  ensure  comprehensive 
levels 
climate resilience and adaptation. 

Climate adaptation and preparedness 

is  exposed  to  climate  change 
Germany 
impacts  which  will 
require  significant 
investments  in  all  sectors.  See  Annex 19  for 
regional aspects to climate change vulnerability. In 
2025,  Germany  experienced  a 
record  dry 
spring (328), resulting in unusually  low Rhine water 
levels  with  implications  for  ecosystems  and  river 
transport. Heatwaves have a significant impact on 
Germany.  In  summer  2025,  severe  wildfires  in 
triggered  evacuations  and 
eastern  Germany 
response. 
required  a 
Copernicus EMS Rapid Mapping was activated (329). 
Germany  had  6 282  heat-related  fatalities  in 
2024 – close to the EU-27 median but well below 
the mean (330). Furthermore, parts of Germany are 
in  one  of  the three types of  EU  regions identified 
as  hotspots  most  affected  by  climate  risks 
(i.e. low-lying  coastal  regions).  These  areas  are 

large-scale  emergency 

(328) DWD, 2025, 

https://www.dwd.de/DE/presse/pressemitteilungen/DE/2025/2
0250415_pm_trockenheit_news.html?nn=16210. 

(329) Copernicus Emergency Management Service, 2025, 

https://storymaps.arcgis.com/stories/66b40f837f0f45aab96
2b636b1dc4eea. 

(330)Janoš  et  al.,  2025,  Heat-related  mortality  in  Europe  during 
reduce 
2024  and  health  emergency 
preventable  deaths,  https://www.nature.com/articles/s41591-
025-03954-7.  The  mean  is  pulled  up  by  some  Member 
States (e.g. Greece, Croatia, Italy and Romania). 

forecasting 

to 

particularly  at  risk  from  flooding,  erosion  and 
saltwater  intrusion  aggravated  by  sea  level  rise 
(331). If current levels of coastal protection are not 
raised,  the  direct  economic  damage  and  social 
impact  from  coastal  flooding 
in  Germany is 
(332). 
projected  to  rise  sharply  this  century) 
Available  sources estimate that investment needs 
related to climate adaptation will be significant in 
the  future.  A  recent  study  commissioned  by 
DG CLIMA (333)  estimates  that  Germany  will  need 
to  invest  almost  EUR 9.6 billion  per  year  up  to 
2050.  This  would  be  equivalent  to  0.19%  of 
annual GDP (lower than the EU average of 0.5%). 
The  priority  area  for 
investment  would  be 
infrastructure retrofitting and reinforcement (more 
than  50%  of  the  total),  followed  by  ecosystems 
restorations (around 26%) and food (around 15%). 

adaptation 

establishing 

Germany  is  continuing  with  strategy-setting 
for 
an 
and 
implementation  model.  The  Federal  Climate 
Adaptation Act (KAnG) entered into force in 2024. 
It  was  accompanied  by  a 
comprehensive 
adaptation  strategy (334),  including  an  action  plan 
that  outlines  over  180 specific  measures  to 
targets  and  around  90 further 
address 
measures  and 
instruments.  The  plan  was 
developed  with  input  from  a  climate  impact  and 
risk  analysis.  It  identifies  33  measurable  goals  in 
order  to  guard  against  extreme  weather  events 
(e.g. heat,  drought,  heavy  rain  and  flooding).  The 
Länder  are  now  required  to  prepare  their  own 
adaptation  strategies  by  2027  and  to  support 

the 

(331)EEA, 

2024, 

European 

Assessment, 
https://www.eea.europa.eu/en/analysis/publications/europea
n-climate-risk-assessment. 

Climate 

Risk 

(332) Nature Communications, 2020, Economic motivation for 

raising coastal flood defenses in Europe.  

(333) European Commission (2026), Assessment of adaptation 

investment needs, Table 25, 
https://op.europa.eu/en/publication-detail/-
/publication/d2039eac-f742-11f0-b9bc-
01aa75ed71a1/language-en%20(Table%208). The study 
provides detailed estimates of adaptation investment needs 
at the level of the EU and individual Member States per type 
of measure. It relies on a common methodology that makes 
estimates comparable across the EU. Four accompanying 
methodological reports provide a detailed description of how 
the results were estimated to ensure full transparency. 

(334) The KWRA, see Climate Adapt, 2021, https://climate-

adapt.eea.europa.eu/en/news-archive/climate-impact-and-
risk-assessment-2021-for-
germany?utm_source=chatgpt.com. 

92 

 
 
 
 
 
municipal  adaptation  concepts (335).  In  2025,  sub-
national  progress  continued,  with  Hamburg (336) 
and  Bremen (337)  adopting  new  adaptation 
strategies  and  Saxony-Anhalt  updating 
its 
strategy (338).  Monitoring 
is  being  carried  out 
through  a  federal  indicator  system  managed  by 
the  Umweltbundesamt  (UBA).  The  2027  national 
monitoring  report  is  expected  to  inform  the  next 
update  of  the  adaptation  strategy  in  2028 (339). 
Governance  and  coordination  have  strengthened, 
but effective delivery still depends on the capacity 
of the Länder and municipalities, and funding and 
limiting 
staffing 
comprehensive local uptake (particularly in smaller 
municipalities). 

constraints 

still 

are 

The  Covenant  of  Mayors  –  referenced  in  the 
EU  Adaptation  Strategy  –  provides  a 
platform  for  municipal  action.  The  share  of 
Germany’s population covered by the EU Covenant 
of  Mayors  signatories  has  been  slowly  increasing 
but  remains  one  of  the  lowest  in  the  EU  in  2024 
(19% vs EU-27: 34%). 36% of German signatories 
have  submitted  a  sustainable  energy  and  action 
plan (SECAP) on time (i.e. within two years of their 
initial  commitment  to the EU  Covenant)  and  11% 
have  submitted  at  least  one  monitoring  report 
within the recommended timeframe (i.e. within two 
their  SECAP) (340).  This 
years  of  submitting 
indicates  a  growing  commitment  among  German 
municipalities to increase climate resilience, but it 

(335) BMUKN, Federal Climate Adaptation Act, 2024, p.7, 

https://www.bundesumweltministerium.de/fileadmin/Daten_B
MU/Download_PDF/Gesetze/kang_en_bf.pdf. 

(336) Strategie zur Anpassung Hamburgs an den Klimawandel, 

2025, 
https://www.hamburg.de/resource/blob/1023070/d91af2654
23c662f23accb68a6b712b0/d-klimaanpassungsstrategie-
data.pdf. 

(337) Klimaanpassungsstrategie Bremen, Bremerhaven, 2025, 

https://www.klimaanpassung.bremen.de/sixcms/media.php/1
3/Klimaanpassungsstrategie_BremenBremerhaven_2025.pd
f. 

(338) Klimawandel in Sachsen-Anhalt, Monitoringbericht 2025, 

2025, https://mwu.sachsen-
anhalt.de/fileadmin/Bibliothek/Politik_und_Verwaltung/MWU/
Klimaschutz/Klimawandel-
Anpassungstrategie/Klimawandelmonitoringbericht_2025.pd
f. 

(339) UBA, 2024, https://www.umweltbundesamt.de/themen/neue-

deutsche-anpassungsstrategie-
soll?utm_source=chatgpt.com. 

(340) European Commission, https://eu-

mayors.ec.europa.eu/en/key_figures. 

93 

also  shows  that  implementation  of  policies  is 
lagging behind at the local level. 

in  economic 

Climate  risks  have  a  direct  and  significant 
effect on  Germany’s  economy, but  insurance 
coverage  is  significantly  stronger  than  the 
EU  average.  Between  1980  and  2024,  Germany 
recorded  EUR 187 billion 
losses 
caused  by  weather  and  climate-related  extreme 
events. It suffered some of the highest damage in 
the  EU  in  absolute  terms,  per  capita  and  per 
km2 (341).  Germany  belongs  to  the  group  of 
Member  States  with  the  second  highest  share  of 
natural  catastrophes  damages 
in  relation  to 
GDP (342),  behind  south-eastern  Member  States. 
Germany  has  higher-than-average 
insurance 
coverage  against  weather-related  and  climate-
related events in the EU (31% vs EU-27:19% (343)), 
but  the  insurance  gap  remains  large.  It  is  not 
mandatory to have insurance coverage for the two 
highest  risk  factors  (river  and  coastal  floods).  For 
disaster compensation, Germany has largely relied 
on  ad  hoc  public  relief  (e.g. Aufbauhilfe  after  the 
2021  floods).  Germany  does  not  have  a  national 
insurance scheme in place (344), but such a scheme 
could help improve insurance coverage and reduce 
the 
(especially  for 
materially  exposed  households  and  SMEs). 
However, policy awareness has grown. The Länder 
have  publicly  pushed  for  mandatory/expanded 
natural  hazard 
cover  alongside  dedicated 
adaptation  financing.  The  private  sector  has 
designs 
demonstrated 

insurance  protection  gap 

concrete 

some 

(341)EEA,  2025,  Economic  losses  from  weather-  and  climate-
related 
Europe, 
https://www.eea.europa.eu/en/analysis/indicators/economic-
losses-from-climate-related. 

extremes 

in 

catastrophe 

(342)ECB  and  EIOPA,  2024,  Towards  a  European  system  for 
natural 
management, 
https://www.eiopa.europa.eu/document/download/d8c87070-
f602-4bf7-b8d8-726ec0b5c173_en?filename=eiopa-ecb-
climate-insurance-protection-gap.pdf. 
includes earthquakes which happened in 2020-2023. 

Chart 2. 

figure 

This 

risk 

(343)EEA,  2025,  Economic  losses  from  weather-  and  climate-
Europe, 
related 
https://www.eea.europa.eu/en/analysis/indicators/economic-
losses-from-climate-related. 

extremes 

in 

catastrophe 

(344)ECB  and  EIOPA,  2024,  Towards  a  European  system  for 
p. 16, 
risk 
natural 
https://www.eiopa.europa.eu/document/download/d8c87070-
f602-4bf7-b8d8-726ec0b5c173_en?filename=eiopa-ecb-
climate-insurance-protection-gap.pdf. 

management, 

 
 
 
(e.g. Elementar from 
association GDV (345)). 

Germany’s 

insurance 

not 

has 

Climate-proofing 
been 
systematically  applied  across  sectors  and 
key  infrastructure.  Germany  does  not  outline 
clear  policies  and  measures  to  integrate  the 
climate  adaptation  imperative  into  the  energy 
system (346).  The  national  adaptation  strategy  has 
identified  a  low  medium-term  risk  in  the  energy 
area and this will be looked at in more detail in the 
upcoming  update  of  the  strategy  (2028) (347).  On 
transport,  the  strategy  has  a  land-based  target 
and  a  water-based  target.  The  land-based  target 
focuses  on  reducing  the  number  of  incidents  due 
to  extreme  weather  events.  With  regard  to  the 
water-based  target,  the  adaption  measures  are 
intended to help  reduce the impacts of low-water 
periods.  The  vulnerability  index  of  the  TEN-T 
network  to  climate  change  has  been  assessed  as 
the  lowest  in  the  EU.  This  is  mainly  due  to 
Germany’s  high  general  adaptation  preparedness 
and  high  transport  adaptation  preparedness (348). 
However,  the  study  also  cautions  that  it  ‘cannot 
‘non-
classify 
vulnerable’ (349).  Going  forward,  predominantly 
coastal  floods  as  well  as  heatwaves  are  likely  to 
play  an  important  role  in  Germany  and  are 
associated  with  the  highest  expected  costs  for 
adaptation.  An  estimated  total  of  EUR 5.8 billion 
will need to be invested until mid-century in TEN-T, 
mostly  in  railways  (EUR 2.6 billion)  and  maritime 
ports (EUR 2 billion) (350). 

any  Member 

State 

as 

(345)GDV (the German insurance association), Basic protection for 
all: Insurers present framework for a safeguard system against 
natural  catastrophes,  https://www.gdv.de/gdv-en/media/basic-
protection-for-all-insurers-present-framework-for-a-safeguard-
system-against-natural-catastrophes-
194810?utm_source=chatgpt.com. 

(346)Staff  working  document  accompanying 

the  EU-wide 
assessment of the final updated national energy and climate 
plans,  Delivering  the  Union’s  2030  energy  and  climate 
objectives, NECP assessment, COM (2025/274 final), p. 42. 

(347)BMUKN, Climate Adaptation Strategy, p. 28, 

https://www.bundesumweltministerium.de/en/download/2024
-german-climate-adaptation-strategy. 

(348)European  Commission,  2024, Support  study  on  the  climate 
adaptation and cross-border investment needs to realise the 
TEN-T  network,  Publications  Office  of  the  European  Union, 
p. 69. https://data.europa.eu/doi/10.2832/7839720. 

(349)Ibid., p. 70. 

(350)Ibid., p. 108. 

94 

It 

widely 

is  becoming 

(NbS)  more 

There  is  scope  to  tap  into  nature-based 
and 
solutions 
systematically.  In  2025,  Germany  recorded  the 
highest  number  of  fires  and  area  burnt  since  the 
early  2000s (351). 
increasingly 
evident that wildfires are no longer confined to the 
summer  months  but  can  occur  both  earlier  and 
later.  Nature-based  solutions  and  prevention  play 
a key  role in increasing resilience, but their large-
scale  and  systematic  uptake  across  different 
sectors  remains  uneven.  NbS  are  most  advanced 
in  river  and  floodplain  restoration  (as  shown,  for 
example,  by  the  EU-supported  LIFE  project  Living 
River  Lahn (352),  which  restores  natural  river 
dynamics and flood retention capacity). Urban NbS 
(e.g. green  roofs,  de-paving  and  cooling  corridors) 
are increasingly being promoted but remain locally 
driven. Since 2024, progress has accelerated with 
the  federal  action  programme  for  natural  climate 
protection (353).  This  and  the  German  adaptation 
strategy (354)  are  strengthening  the  policy  and 
funding 
framework  by  mainstreaming  NbS. 
However,  scaling-up  still  depends  on  municipal 
capacity, land availability and long-term financing. 

Water resilience 

Germany  faces  seasonal  water  scarcity, 
particularly 
in  North  and  North-East 
Germany  as  well  as  in  parts  of  Bavaria. 
Spring  2025  was  one  of  the  driest  periods  since 
weather 
in  1931.  Between 
1 February 2025 and mid-April 2025, precipitation 
was  68%  below  average (355).  Agriculture,  water 
utilities  and  energy  production  are  among  the 
most  water-dependent  sectors (356).  Furthermore, 

records  began 

(351)According to EFFIS, in 2025 the number of fires and the area 
burnt  were  considerably  higher  than  in  2006-2024  (38 fires 
burning 5 475 ha of forest). 

(352)LIFE Public Database. 

https://webgate.ec.europa.eu/life/publicWebsite/project/LIFE1
4-IPE-DE-000022/living-river-lahn-one-river-many-interests. 

(353)BMUKN,  Aktionsprogramm  Natürlicher  Klimaschutz,  Link.  For 
more  information,  see  the  section  within  this  annex  on 
‘Sustainable Agriculture and Land Use’. 

(354)UBA, 2024, https://www.umweltbundesamt.de/themen/neue-
deutsche-anpassungsstrategie-soll?utm_source=chatgpt.com. 

(355)Helmholtz Centre for Environmental Research (UFZ), Drought 
Monitor Germany, https://www.ufz.de/index.php?en=37937. 

(356)EEA,  2025,  Water  abstraction  by  economic  sector,  2000-

2023, 

 
 
 
 
renewable 

freshwater 

production, 

aquaculture 

reduced  water  levels  can  restrict  cargo  capacity 
raising 
and 
shipping/production  costs  and  consumer  prices. 
The  national  water  exploitation 
index  plus 
(WEI+) (357)  indicates  low  overall  pressure  due  to 
resources. 
abundant 
However, large regional disparities persist and the 
JRC  European  Drought  Risk  Atlas  shows  a  very 
differentiated  picture.  Northern  parts  of  Germany 
are  especially  vulnerable  because  of  factors  like 
sandy  soils,  lower  average  precipitation  and  slow 
groundwater  recharge (358).  A  recent  study (359) 
shows  that  Germany  is  losing  more  water  than  it 
restores  and  that  climate  change  as  well  as 
changing  land  use  patterns  are  widening the  gap. 
The  cost  of  inaction  could  amount  to  at  least 
EUR 20-25 billion  annually  or  EUR 500-625 billion 
cumulatively by 2050.  

Water  productivity  in  Germany (360)  stood  at 
EUR 170 per m³ of abstracted water in 2022 
(above  the  EU-27  average  of  EUR 151  per 
m³),  reflecting  efficient  water  management 
practices,  low  per  capita  water  consumption 
treatment 
and 
systems. In 2023, public water supply  accounted 
for  22.2%  of  freshwater  abstraction.  Energy 
largest  abstractor,  at 
production  was 
50.3% (361).  Since  2014,  abstraction  from  fresh 
surface  water  has  been  slowly  decreasing  (by 

advanced  wastewater 

the 

https://www.eea.europa.eu/en/analysis/indicators/water-
abstraction-by-source-and/water-abstraction-by-economic-
sector. 

(357)Eurostat, 

Water 

Exploitation 

Index, 

plus, 

https://ec.europa.eu/eurostat/databrowser/view/sdg_06_60/d
efault/table?lang=en. WEI is a measure of how much water is 
being  used  compared  with  the  total  renewable  freshwater 
resources available for a given territory and period. 

(358)Rossi,  et  al.  (JRC),  2023,  European  Drought  Risk  Atlas, 
Union, 
of 

Publications 
https://publications.jrc.ec.europa.eu/repository/handle/JRC135
215. 

European 

Office 

the 

(359)BCG  and  NABU,  2026,  Every  Drop  Counts  –  Pathways  to 
Balance, 

Restore 
https://www.bcg.com/publications/2026/every-drop-counts-
pathways-to-restore-germanys-water-balance. 

Germany’s 

Water 

(360)Water  productivity  is  a  metric  that  is  calculated  by  dividing 
GDP  (in  chain-linked  volume)  by  total  water  abstraction.  It 
indicates the average economic value (GDP) a Member State 
creates for each unit of water it takes from nature. 

(361)EEA,  2025,  Water  abstraction  by  economic  sector  2000-

2023, 
https://www.eea.europa.eu/en/analysis/indicators/water-
abstraction-by-source-and/water-abstraction-by-economic-
sector. 

95 

27%),  due  to  a  shift  toward  less  water-intensive 
technologies.  However,  in  view  of  the  increase  in 
climate-change-induced dry periods and the risk of 
over-abstractions,  Germany  could  increase  and 
harmonise the use of abstraction permits and fees 
for  all  water  users  nationwide;  better  monitor the 
actual  abstracted  amounts;  and  harmonise  the 
inconsistent  use  of  exemptions  from  water  fees. 
The  Länder  currently  set  their  own  charges  for 
water  abstraction.  14  of  the  16  Länder  levy 
charges for the abstraction, extraction or discharge 
of  groundwater  (between  EUR 0.15  and  EUR 0.31 
per m3). The German drinking water network is one 
of  the most  efficient  in  the  EU  (it loses  less  than 
7% and is on a downward trend) (362).  

(SWBs) 

The  good  ecological  status  of  Germany’s 
surface  water  bodies 
improved 
slightly  between  the  second  and  third  river 
basin  management  plans  (RBMPs),  but  from 
initially  very  low  level  of  8.1%  to 
an 
9.3% (363).  The  main  pressures  remain  nutrient 
pollution from agriculture and physical alterations. 
Coastal  and  transitional  waters  are  particularly 
affected  by  pollution  (100%  fail  to  achieve  good 
ecological status or potential). The high density of 
barriers  and  obstacles (364)  on  Germany’s  rivers 
and  smaller  streams  impacts  the  good  ecological 
status of surface water. It isolates and fragments 
habitats;  reduces  migration  of  fish  species;  and 
blocks 
thereby 
increasing the risk of floods. Germany has some of 
the most fragmented river networks in the EU with 
about  2 barriers  per  km  of  river/stream 
in 
Germany  (EU-average  is  about  1  barrier  per  1.4 
km).  The  third  RBMP (365)  states  that  around  37% 
of  all  reported  water  bodies  are  significantly 

transport  of  sediments, 

the 

(362)Umweltbundesamt,  2024,  Öffentliche  Wasserversorgung, 
https://www.umweltbundesamt.de/daten/wasser/wasserwirtsc
haft/oeffentliche-wasserversorgung#grundwasser-ist-
wichtigste-trinkwasserressource. 

(363) WISE, Surface water bodies: ecological status or potential, 

https://water.europa.eu/freshwater/resources/metadata/wfd-
dashboards/surface-water-bodies-ecological-status-or-
potential-group-table. 

(364)AMBER, Adaptive Management of Barriers in European River. 

(365)European  Commission,  2024,  Seventh 

Implementation 
Report from the Commission to the Council and the European 
Parliament  on  the  implementation  of  the  Water  Framework 
Directive 
Floods  Directive 
and 
(2007/60/EC)  (Third  River  Basin  Management  Plans  and 
Second 
Plans), 
https://environment.ec.europa.eu/topics/water/water-
framework-directive/implementation-reports_en. 

(2000/60/EC) 

Management 

Flood 

Risk 

the 

 
 
 
is 

of 

the 

biological 

interruption 

affected  by  pressures  from  hydropower  and  that 
this impacts ecological status. The impacts include 
the 
and 
hydromorphological  continuity  of  watercourses 
(preventing  migratory  fish  of  reaching 
their 
spawning grounds); direct damage to organisms by 
hydropower turbines (around 22% of the fish of all 
ages pass through a turbine die and an even larger 
percentage 
injured);  and  habitat  changes 
affecting  water  levels  downstream.  Furthermore, 
35%  of  Germany’s  water  bodies  are  heavily 
modified  water  bodies  (HMWBs)  and  17%  are 
artificial with a lower environmental objective. The 
designation of HMWBs is largely the result of land 
drainage for agriculture (66%), urbanisation (28%) 
and  flood  protection  (19%).  Germany’s  measures 
include  the  federal 
to  address  the  problem 
programme  ‘Blue  Belt  Germany’,  which  funds  the 
implementation  of  measures  on 
rivers  and 
floodplains and is designed to last 30 years. Every 
year,  around  EUR 60 million  is  made  available  by 
the federal government for renaturation of federal 
waterways  and  floodplains(366).  All  German  SWBs 
failed  to  achieve  good  chemical  status.  This  is 
to  ubiquitous  persistent,  bio-
mainly  due 
accumulative  and 
(uPBTs) 
emitted  during  combustion  of  fossil  fuels  and 
industrial  use (367).  Current  analysis  indicates  that 
the  Water 
the  environmental  objectives  of 
Framework  Directive  (WFD)  will  not  be  achieved. 
These  challenges  could  be  better  addressed  by 
improving 
and 
sectors  of 
coordination  between  different 
administrations responsible for different elements 
of  water  management.  The  lack  of  coordination 
limits  access  to  high-quality  water  for  industrial 
and  agricultural  use  and 
increases  water 
treatment costs.  

toxic  substances 

administrative 

capacity 

Germany is basically fully compliant with the 
requirements  of  the  Urban  Wastewater 
Treatment  Directive 
reaching 
99.9%  in  2022.  This  means  that  the  collection, 
and/or 
biological 

treatment  with 

(UWWTD), 

nitrogen 

(366)Bundesprogramm 
https://www.blaues-
band.bund.de/Projektseiten/Blaues_Band/DE/00_Home/home
_node.html. 

Blaues 

Band 

Deutschland, 

staff 

(367)European 

Commission, 

the  Report  on 

accompanying 
Management 
lex.europa.eu/legal-
content/EN/TXT/?uri=SWD%3A2025%3A25%3AFIN&qid=173
8746144581. 

working 

document 
the  Third  River  Basin 
https://eur-
Germany, 

Plan 

for 

phosphorus 
removal  of  urban  wastewater 
complies with EU legislation. This is above the EU 
average  of  75.9% (368).  Annual  investment  costs 
for  collection  systems  were  EUR 2 641 million  in 
2020,  but  current  costs  are  not  available.  Past 
annual investment costs for treatment plants were 
EUR 1 355 million 
in  2020,  but  current  and 
projected  costs  for  2022  are  not  available (369). 
Overall,  Germany  still  needs  to  invest  around 
EUR 3.7 billion  per  year  (0.1%  of  GDP),  mostly  on 
waste  water  treatment,  in  order  to  meet  the 
various  environmental  targets  set  by  the  Water 
Framework Directive and the Floods Directive (370). 

Nature restoration 

Germany’s  economy  is  structurally  exposed 
to  nature  loss  through  its  dependency  on 
ecosystem  services (371).  About  41%  of  gross 
value added (GVA) relies directly on the ecosystem 
(below  the  EU  average  of  44%).  However,  the 
nature 
entire 
degradation,  because  all  sectors  are  interlinked 
through 
connections, 
potentially  leading  to  cascading  effects  along 
value chains. 

supply  and 

vulnerable 

customer 

economy 

to 

is 

is 

Germany  has  exceptionally  rich  biodiversity, 
but  habitat  degradation 
increasingly 
widespread. About 39% of Germany’s territory is 
designated as protected areas – way above the EU 
average  of  26.4% (372),  Protected  areas  include 
national  nature  conservation  sites,  national  parks, 
landscape 
national  nature  monuments  and 
protection  areas.  Many  of  these  do  not  meet  the 

(368)Germany | Country profiles on urban waste water treatment | 

WISE Freshwater. 

(369)Internal documents, Implementation of Directive 91/271/EEC 

(UWWTD), 2022. 

(370)European Commission, 2025, Environmental Implementation 
report, 

Review, 
https://environment.ec.europa.eu/law-and-
governance/environmental-implementation-review_en. 

Germany 

country 

(371)Hirschbuehl  et  al. 

(JRC),  2025,  The  EU  economy`s 
dependency  on  nature,  Vasilakopoulos,  P.  editor(s), 
European 
Commission, 
https://publications.jrc.ec.europa.eu/repository/handle/JRC14
0304?mode=full. 

(372)  Eurostat, Protected Areas Indicator, 

https://ec.europa.eu/eurostat/databrowser/view/env_bio4/de
fault/table?lang=en&category=env.env_biodiv. 

96 

 
 
 
in 

of 

terms 

effective 

Commission’s  criteria  for  the  30%  protected  area 
target set out in the EU’s biodiversity strategy (373). 
It would be beneficial if Germany were to focus on 
improving the quality of existing designated areas 
(particularly 
site 
management  and  monitoring).  A  recent  inventory 
and  assessment  of  biodiversity  in  Germany (374) 
indicates that more than half of Germany’s habitat 
types  are  in  an  unfavourable  condition.  Overall, 
60%  of  the  93  habitat  types  described  have  an 
insufficient or poor conservation status and are on 
a  deteriorating  trend.  The  situation  is  particularly 
concerning  for  grasslands,  formerly  species-rich 
arable  fields,  mires,  swamp  forests,  marshes  and 
springs. More than half of the marine and coastal 
habitat  types  of  the  North  and  Baltic  Seas  are  at 
long-term  risk.  Furthermore,  almost  a  third  of  all 
species  on  the  Red  Lists  are  at  risk  (i.e.  they  are 
threatened  with  extinction  or  are  highly 
endangered) and about 3% are already considered 
intensification,  urban  and 
extinct.  Land-use 
infrastructure expansion, climate change, pollution 
and hydrological alteration are the main drivers of 
this degradation.  

Germany is aligning national policy, planning 
and  on-the-ground  river  restoration  actions 
with  existing  EU  water  and  nature 
legislation. It is preparing for the implementation 
of  the  EU  Nature  Restoration  Law,  which includes 
the aim of making at least 25 000 km of rivers in 
the  EU  free-flowing  by  2030.  The  network  of  all 
rivers  and  flowing  watercourses  in  Germany  is 
very  extensive,  with  a  total  length  of  more  than 
500 000 km.  However,  many 
sections  are 
canalised,  straightened  or  restricted  by  bank 
reinforcements. 
river 
restoration  projects (375)  are  being  implemented 
enhancing  biodiversity, 
with 
reestablishing 
reconnecting  ecosystems  and 
natural  flows. Germany  could mitigate the impact 
of  floods  by  stepping  up  its  efforts  to  improve 
river  continuity,  ensuring  minimum  ecological 

the  aim 

Regional 

local 

and 

of 

(373)EEA 

report, 

Europe’s 
https://www.eea.europa.eu/en/europe-environment-
2025/countries/germany. 
science, 

Artenvielfalt, 

Environment 

Faktencheck 

(374)Oekom 

2025, 

2024, 

https://www.feda.bio/wp-
content/uploads/2025/01/Faktencheck-Artenvielfalt-
Gesamtbericht_hq.pdf. 

(375)Bundesamt 

für 

Naturschutz, 

Auenrenaturierungsprojekte  an  Flüssen 
https://www.bfn.de/daten-und-
fakten/auenrenaturierungsprojekte-fluessen-deutschland. 

2025, 
in  Deutschland, 

flows, improving the general hydrological situation 
and  increasing  fish  protection.  Free-flowing  rivers 
also  generate  broader  socio-economic  benefits 
(e.g. an  enhanced  rural  landscape,  new  recreation 
and  tourism  opportunities,  strengthened  local  job 
improved  water  quality,  and  better 
creation, 
sediment  transport  that  protects  deltas  and 
coastal  areas  against  erosion  and  rising  sea 
levels). Ambitious initiatives like the action plan on 
nature-based solutions for climate and biodiversity 
(ANK) (376)  and  the  national  water  strategy (377) 
aim 
adapt 
ecosystems 
restore 
infrastructure to climate extremes. 

and 

to 

Nature  degradation  is  further  amplified  by 
invasive  alien  species.  48  were  recorded  in 
Germany  in  2024,  inflicting  estimated  damage  of 
more  than  EUR 8 billion  up  to  2020  (primarily 
affecting 
public 
health) (378).  However,  eutrophication  (a  threat  to 
biodiversity  and  ecosystem  integrity)  has  partially 
improved,  with  the  areas  at  risk  declining  from 
86% to 70% since 2005 (379).  

agriculture, 

fisheries 

and 

as 

Germany 

its  climate  and 
is  continuing 
Germany 
environmental 
challenges 
efforts 
intensify,  but  a  biodiversity  financing  gap 
persists. 
estimated 
EUR 638 million/year shortfall in funding designed 
conservation  priorities.  Despite 
to  address 
cohesion 
to 
EUR 580 million  in  the  current  financing  period, 
this  shortfall  underscores  the  need  for  increased 
investment in habitat restoration (380).  

investment 

policy 

faces 

an 

up 

of 

(376)BMUKN, 

Aktionsprogramm 

Klimaschutz, 
https://www.bundesumweltministerium.de/download/aktionsp
rogramm-natuerlicher-klimaschutz-kurzfassung. 

Natürlicher 

(377)BMUKN, 

Nationale 

Wasserstrategie, 

https://www.bundesumweltministerium.de/download/national
e-wasserstrategie-2023. 

(378)Neobiota,  2021,  Economic  Cost  of  invasive  alien  species 
across  Europe,  https://neobiota.pensoft.net/article/58196/.  
European  Commission,  2025, Environmental  Implementation 
Review, 
Report. 
Country 
Germany 
https://ec.europa.eu/transparency/documents-
register/detail?ref=SWD(2025)310&lang=en. 

(379)EEA,  2024,  Eutrophication  caused  by  atmospheric  nitrogen 
Europe, 

deposition 
https://www.eea.europa.eu/en/analysis/indicators/eutrophicati
on-caused-by-atmospheric-nitrogen. 

in 

(380)European Commission, 2025, Environmental Implementation 
report, 

Review, 
https://environment.ec.europa.eu/law-and-
governance/environmental-implementation-review_en. 

country 

Croatia 

97 

 
 
 
Sustainable agriculture and land use 

additional 

Germany’s carbon removals fall short of the 
level  of  ambition  needed  to  meet  its  2030 
target  for  land  use,  land-use  change  and 
forestry  (LULUCF).  Germany’s  LULUCF  sector 
has  generated  strong  emissions  since  2018.  This 
worrying  trend  is  primarily  attributed  to  drought- 
and  pest-related  forest  damage,  which  results  in 
forests  no  longer  being  able  to  offset  high 
emissions from drained organic soils to the extent 
previously  assumed.  To  meet  its  2030  LULUCF 
target, 
of 
3.8 MtCO2-eq are needed (381). The latest available 
of 
target 
a 
projections 
3.7 MtCO2-eq (382).  Additional  measures 
are 
therefore  needed  in  the  land  sector  in  order  to 
reach  the  2030  target.  In  addition  to  increasing 
in 
LULUCF  net  removals,  further 
healthy forests and soils is key to building resilient 
biobased  product  value  chains  and  enabling  a 
growing,  competitive  EU  bioeconomy.  Continuing 
improvements  in  the  system  for  monitoring  net 
removal  data  and  projections  will  be  crucial  to 
supporting  timely  and  effective  action  in  the 
sector. 

investment 

removals 

carbon 

show 

gap 

to 

is 

scaling 

nature-based 
Germany 
up 
measures  and  monitoring 
to 
in  order 
strengthen  LULUCF  removals,  with  delivery 
towards  2030  now  the  key  challenge.  No 
further LULUCF-specific legislation is planned  and 
Germany  is  now  focusing  on  implementation  in 
order  to  address  the  weakened  LULUCF  sink.  The 
federal  action  plan  on  nature-based  solutions 
(ANK) (383) 
through 
is  being  operationalised 
EUR 4.5 billion (384) 
rewetting, 

peatland 

for 

(381)National  LULUCF  targets  of  the  Member  States  in  line  with 
Regulation  (EU)  2023/839,  https://eur-lex.europa.eu/legal-
content/EN/TXT/PDF/?uri=CELEX:02018R0841-20230511. 

(382)European Commission, EU Climate Action Progress Report 
2025, https://climate.ec.europa.eu/eu-action/climate-
strategies-targets/progress-climate-action/eu-climate-action-
progress-report-2025_en. 

(383)BMUKN, Aktionsprogramm Natürlicher Klimaschutz, 

https://www.bundesumweltministerium.de/download/aktionsp
rogramm-natuerlicher-klimaschutz-kurzfassung. 

(384)BMUKN,  Fragen  und  Antworten  zum  Aktionsprogramm 
Klimaschutz, 
Natürlicher 
https://www.bundesumweltministerium.de/presse/fragen-und-
antworten-faq/fragen-und-antworten-zum-aktionsprogramm-
natuerlicher-klimaschutz. 

is 

climate-resilient  forest  management  and  soil 
also 
(2024-2029).  Germany 
measures 
upgrading monitoring and reporting systems under 
the  ANK,  with  the  Federal  Agency  for  Nature 
Conservation playing a coordinative role. Peatland 
restoration under the national  peatland protection 
strategy  is  moving  into  practical  roll-out  (aim: 
5 MtCO2-eq  reduction  annually  from  drained 
peatlands  by  2030 (385)).  To  complement  the 
‘Peatlands 
strategy,  Germany  has 
Breakthrough’ 
champion 
initiative 
country (386).  

joined  the 
a 

as 

Germany  faces  environmental  and  public 
health  risks  due  to  persistent  agricultural 
pollution  pressures  and  rapid  transfer  of 
systems. 
in  groundwater 
contaminants 
Germany’s  functional  urban  area 
(FUA)  has 
considerably  expanded  in  recent  years.  Net  land 
taken  each  year  between  2018  and  2021 
accounted  for  507 ppm/year  of  the  Germany’s 
total  urban  surface.  Most  land  has  been  taken 
from arable land. This ongoing ‘land take’ and the 
associated  soil-sealing 
is  reducing  ecosystem 
resilience,  decreasing  carbon  sequestration  and 
impairing flood protection (387). 

Water quality is improving very slowly. Under 
the  EU  Nitrates  Directive,  50%  of  Germany’s 
groundwater monitoring stations recorded average 
nitrate  concentrations 
in  excess  of  25 mg/l 
between  2016  and  2019 (388).  Almost  27%  were 
above 50 mg/l,  the EU threshold for safe drinking 
water.  These  worrying  numbers  reflect  systemic 
agricultural pressures. Stricter rules on fertilisation 
that  have  been  put  in  place  to  implement  a 
judgment  of 
to 
improvements in the next reporting period. Nitrate 

the  CJEU (389)  might 

lead 

(385)Willenbockel,  2024,  Peatland  restoration  in  Germany:  A 
dynamic 
analysis, 
https://www.sciencedirect.com/science/article/pii/S092180092
4000843?utm_source=chatgpt.com#bb0010. 

equilibrium 

general 

(386)Press 

release 

the  Global  Peatlands 
https://globalpeatlands.org/germany-joins-peatland-
breakthrough-champion-country. 

from 

Initiative, 

(387)EEA,  2022,  Land  take  and  land  degradation  in  functional 
areas, 

urban 
https://www.eea.europa.eu/en/analysis/publications/land-
take-and-land-degradation. 

(388)EEA, 

2025,  Nitrate 

in 
https://www.eea.europa.eu/en/analysis/indicators/nitrate-in-
groundwater-8th-eap. 

groundwater 

in 

Europe, 

(389)Judgment of 21 June 2018, European Commission v Federal 

Republic of Germany, case C-543/16. 

98 

 
 
 
pollution  is  contributing  to  the  eutrophication  of 
the  North  and  Baltic  Seas,  declining  fish  stocks 
and  high  costs  of  removing  excess  nitrates  from 
drinking  water.  Effective  measures  are  needed  to 
address  excess  nitrate  deposition,  especially  in 
areas  with  high  livestock  density.  Germany  has  a 
livestock  density  of  0.98 livestock  units  per 
hectare  in  2020 (390)  (above  the  EU  average  of 
0.75).  A  20%  reduction  in  agricultural  ammonia 
2023 (391) 
emissions 
underscores  improvement in  emission  control  and 
Germany  is  projected  to  be  on  track (392)  to  meet 
its  reduction  commitments  to  be  achieved  by 
2030.  However,  the  fact  that  nitrate  pollution  is 
continuing  does 
in  nutrient 
management strategies. 

indicate  gaps 

between 

2018 

and 

Pesticide  contamination  remains  a  critical 
issue.  48%  of  German  surface  water  bodies 
(rivers)  broke  regulatory 
limits  for  pesticide 
residues  between  2018  and  2023(393).  EU  total 
contaminated  area  of  27%  of  surface  waters. 
Pesticides  not  only  threaten  aquatic  ecosystems 
and  related  socio-economic  activities  (such  as 
fisheries and coastal tourism) but also pose long-
term risks to human health through contaminated 
drinking  water  and  food  chains.  The  level  of 
pesticides  contamination  in  soil  is  also  high.  65% 
of  agricultural  soils  show  pesticides  residues 
above 0.5 mg/kg-1 (394).  

(390)Eurostat, 

index. 
https://ec.europa.eu/eurostat/databrowser/view/tai09/default/t
able?lang=en. 

Livestock 

density 

(391)EEA,  Air  pollutant  emissions  data  viewer 

(Gothenburg 
1990-2023. 
Protocol, 
https://www.eea.europa.eu/en/topics/in-depth/air-pollution/air-
pollutant-emissions-data-viewer-1990-2023. 

Convention) 

Air 

(392)EEA,  2025,  Magnitude  of  emission  reductions  (percentage) 
required  by  EU  Member  States  to  meet  their  emission 
reduction  commitments  for  2030  onwards,  based  on  2023 
data,  https://www.eea.europa.eu/en/analysis/publications/air-
pollution-in-europe-2025-reporting-status-under-the-
national-emission-reduction-commitments-
directive/magnitude-of-emission-reductions-percentage-
required-by-eu-member-states-to-meet-their-emission-
reduction-commitments-for-2030-onwards-based-on-2023-
data. 

(393)EEA,  2024,  Pesticides  in  rivers,  lakes,  and  groundwater  in 

Europe, 
https://www.eea.europa.eu/en/analysis/indicators/pesticides-
in-rivers-lakes-and. 

(394)Vieira  et  al.  (JRC),  2023,  Pesticides  residues  in  European 
agricultural  soils  –  Results  from  LUCAS  2018  soil  module, 
Publications 
Union, 
https://publications.jrc.ec.europa.eu/repository/handle/JRC133
940. 

European 

Office 

the 

of 

99 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Table A10.1:Key Adaptation Indicators 

(1) EFFIS (European Forest Fire Information System). https://forest-fire.emergency.copernicus.eu/apps/effis.statistics/estimates. 
(2) The climate protection gap refers to the share of non-insured economic losses caused by climate-related disasters, based on modelling of the 
risk from floods, wildfires and windstorms, and on the insurance penetration rate. Scale: 0 (no protection gap) – 4 (very high gap). EIOPA, 2025, 
Dashboard on insurance protection gap for natural catastrophes. 
(3) This measures total water consumption as a percentage of the renewable freshwater resources available for a given territory and period. 
Values above 20% are generally considered water scarcity, while values equal to or greater than 40% indicate severe water scarcity. 
(4) European Commission, 2024, Seventh Implementation Report from the Commission to the Council and the European Parliament on the 
implementation of the Water Framework Directive (2000/60/EC) and the Floods Directive (2007/60/EC) (Third River Basin Management Plans and 
Second Flood Risk Management Plans). 
(5) Indicator refers to concentrations of nitrate (NO3) in groundwater, measured as milligrams per litre (mg NO3/L). Nitrate can persist in 
groundwater for a long time and accumulate at a high level through inputs from anthropogenic sources (mainly agriculture). The EU drinking 
water standard is limited to 50 mgNO3/L to avoid threats to human health. 
(6) Net removals are expressed in negative figures and net emissions are expressed in positive figures. Reported data are from the 2025 
greenhouse gas inventory submission. The 2030 value of net greenhouse gas removals is taken from Regulation (EU) 2023/839 – Annex IIa. 
Source: Eurostat, EEA and JRC. 

100 

Climate adaptation and preparedness:EU-27201920202021202220232024latest dataDrought impact on ecosystems17.7215.480.118.170.23-2.76[area impacted by drought as % of total]Forest fires burned area (1)2,006        314         121          4,293     975        826          354,510     [burned area in ha. per year]Economic losses from extreme events8,513        1,661      40,126     11,314   2,230     5,130        40,452       [EUR million at constant 2022 prices]Insurance protection gap (2)---2            2            2               -[composite score between 0 and 4]Sub-national climate adaptation action16             16           17            19          19          19             34              [% of population covered by the EU Covenant of Mayors for Climate & Energy]Water resilience:EU-27201920202021202220232024latest dataWater Exploitation Index Plus, WEI+ (3)4.03          4.12        3.81         4.57       3.35       -4.53            [total water consumption as % of renewable freshwater resources]Water productivity147           147         160          170        --151[EUR per m3]Water abstractionWater abstraction by source (% from surface water)70.69%69.58%68.37%67.05%--Water abstraction by sectorAgricultureElectricity coolingManufactu-ringPublic water supplyMining and QuarryingConstru- ction 1.86%50.31%16.49%22.20%4.97%4.17%Status of water bodies (4)[% of water bodies in a good status]Surface water bodies (ecological)-----9%38%Groundwater bodies (quantitative)-----95%93%Nature restoration:EU-27201920202021202220232024latest dataEcosystem dependency---41%--44%[% of direct dependency]Protected area37.838.238.338.339.126.4[% of terrestrial protected areas]Invasive alien species (IAS)-----4829.2[number of IAS of Union concern]Damage cost of IAS----8.121.69[EUR billion]Eutrophication 435435295[AAE of area at risk of euthrophication]Sustainable agriculture and land use:EU-272012-20182018-2021latest dataYearly net land taken by Member State493          507        670            [ppm of total urban surface per Member State]Land conversion in functional urban area [% of total land taken from 2018-2021]Arable land64%Complex and mixed cultivation0%Forests8%Herbaceous vegetation associations2%Open spaces with little or no vegetation0%Pastures24%Permanent crops1%Water1%Wetlands0%201920202021202220232024latest dataNitrates in groundwater (5)22.722.522.322.222.2[mgNO₃/l]Livestock density0.980.910.75(number of livestock units per hectare of utilised agricultural area)Ammonia emissions 93%93%93%93%93%-94%[% of total utilised agricultural area]Pesticide contamination on rivers and lakes water bodiesrivers48%27%[% of monitoring sites with pesticides exceeding thresholds, 2018-2023]lakes0%18%Pesticide contamination in soil 65%57%[% of samples with a concentration over 0.5 mg/Kg⁻¹]Net greenhouse gas removals from LULUCF (6)72121.076655.963087.275603.568652.8--198,421 [ktCO₂-eq] 
 
 
 
 
  
 
FAIRNESS 
ANNEX 11: LABOUR MARKET 

to 

improvements, 

face  challenges 
Germany  continues 
related  to 
labour  supply  and  ongoing 
economic  restructuring.  Over  the  past  year, 
employment  has  remained  high  but  stagnant, 
unemployment  has  slightly  increased  from  a  low 
point,  and  labour  shortages  have  eased.  Although 
economic growth is expected to rebound and could 
bring  modest  short-term 
the 
manufacturing  sector  is  experiencing  structural 
changes,  leading  to  a  shift  in  employment  away 
from  certain  areas;  this  could  lead  to  regional 
labour  market  adjustment  needs.  An  employment 
shift  to  public  services  and  the  ageing  population 
limited  the  rise  in  unemployment in  2025.  As  the 
population  ages  and  labour  shortages  persist, 
policy  measures  are  underway  to  boost  labour 
supply,  including  investments  in  early  childhood 
education and care and all-day schools, the law on 
active pensions and the creation of the new Work-
and-Stay Agency. However, additional reforms and 
policies  would  be  beneficial  to  substantially 
expand  labour  supply  and  manage  structural 
change  through  improved  job-to-job  transitions. 
The  2025  country-specific  recommendations  for 
Germany  highlighted  the  need  to  increase  labour 
supply and tackle  the shortage of skilled  workers, 
including  by  increasing  the  number  of  hours 
worked,  strengthening  people’s  basic,  green  and 
digital  skills,  and  attracting  and  retaining  talent 
from non-EU countries. The recommendations also 
emphasised  the  need  to  promote  longer  working 
lives 
early 
retirement (395). 

incentives 

reducing 

and 

for 

Employment stagnated, unemployment edged 
up  in  2025,  and  a  cyclical  recovery  is 
expected  to  bring  only  small  improvements. 
Amid  economic  slowdown,  the  employment  rate 
remained at 81.1% in 2025, above the EU average 
(76.1%)  and  1.9 pps  below 
the  national 
employment  target  (83%  by  2030).  The  activity 
rate  continued  to  rise,  increasing  by  0.1 pps  to 
80.3%,  well  above  the  EU  average  (75.7%).  The 
economic  downturn  led  to  a  0.4  pps  rise  in  the 

(395) CSR  2025.5.(1.-3)  Increase  labour  supply  and  tackle  the 
shortage  of  skilled  workers,  notably  by  increasing  hours 
worked,  strengthening  basic,  green  and  digital  skills  and 
better attracting and retaining talent from non-EU countries. 

CSR  2025.(1.6)  ‘Safeguard  the  long-term  sustainability  of 
the  pension  system,  while  maintaining  pension  adequacy, 
including by promoting longer working lives and reducing the 
incentives for early retirement.’ 

unemployment  rate,  to  3.8%  in  2025,  and  a  0.6 
pps rise in youth unemployment to 7.1%; however, 
both  remained  below  the  respective  EU  averages 
of  6%  and  15.2%(396).  Long-term  unemployment 
grew  slightly,  to  1.1%,  and  the  use  of  short-time 
work  for  economic  reasons  declined  (156 000  in 
February  2026,  a  decline  of  114 000 
in  a 
year) (397). Labour hoarding (companies holding on 
to more staff than they need) has eased though it 
remains  above  the  EU  average.  The  likelihood  to 
transition  from  unemployment  to  employment 
remains  low (398).  As  labour  demand  has  been 
softening,  employment  is  forecast  to  shrink  by 
0.1%  in  2026,  before  growing  again  by  0.1%  in 
2027, reflecting accelerating economic growth(399).  

Graph A11.1: Key labour market indicators 

Source: Eurostat, LFS [lfsi_emp_a, une_rt_a, lfsi_neet_a, 
une_ltu_a] 

(396) However,  youth  unemployment  shows  a  marked  regional 
variation,  reaching  9.8%  in  Berlin  and  8.1%  in  Sachsen-
Anhalt  in  2024,  along  with  the  share  of  young  persons 
neither in employment nor in education and training (11.3% 
Schleswig-Holstein).. 
in 
https://www.oecd.org/en/data/tools/oecd-regions-and-cities-
atlas.html. 

Berlin 

9.9% 

and 

in 

(397) Bundesagentur  für  Arbeit  (2026):  Die  Lage  am  Arbeits-  und 

Ausbildungsmarkt in Deutschland, April 2026.  

(398) Ifo Employment Barometer, April 2026. 

(399) European Commission, Spring Forecast for Germany, 2026.  

101 

75808505101520092010201120122013201420152016201720182019202020212022202320242025%%DEActivity rate 20-64 (rhs)Unemployment rate 15-74 (lhs)Long-term unemployment rate 15-74 (lhs)Youth unemployment rate 15-24 (lhs)Young persons neither in employment nor in education and training(NEET) rate 15-29 (lhs) 
 
 
 
  
 
 
 
challenges 

production 

in  professional,  scientific  and 

Labour shortages have eased but continue to 
and 
to 
pose 
investment. Amid weak economic growth, the job 
vacancy rate stood at 2.6% in Q4-2025, above the 
EU  average  (2.0%).  Still,  this  is  a  significant  drop 
from  its  post-pandemic  peak  (4.5%  in  Q2-2022). 
Vacancy  rates  are  highest  in  construction  (5.1%) 
and 
technical 
activities  and  administrative  and  support  service 
activities  (4%),  and  lowest  in  industry  (1.6%)  and 
real  estate  activities  (1.9%).  A  relatively  large 
share  of  firms  in  services  report  that  labour 
shortages  are  a  factor  limiting  their  production 
(20.6%  in  Q2-2026),  above  the  EU  average 
(19.5%) (400). In 2025, 73% of firms identified the 
availability  of  skilled  labour  as  a  barrier  to 
investment (401).  Looking  ahead,  demographic 
ageing is expected to keep the labour market tight.  

pressures 

The  manufacturing  sector  is  experiencing 
structural  change,  leading  to  a  shift  in 
employment  away  from  certain  areas. 
is  driven  by 
in  manufacturing 
Restructuring 
increasing 
from 
competitive 
technological  catch-up  and  industrial  policies  in 
China  and  Southeast  Asia,  the  twin  transitions, 
demographic  change  and  skills  shortages.  This 
challenge  has  been  compounded  recently  by 
heightened  uncertainty,  geopolitical  tensions  and 
US  tariffs.  Between  2021  and  2025,  the  number 
of  people  employed in  manufacturing  declined  by 
219 000,  from  7.47  million  to  7.25  million.  The 
number  of  new 
job  openings,  start-ups  and 
investments also stagnated in manufacturing (402). 
Furthermore, Germany is also strongly affected by 
industrial challenges (403). Displaced manufacturing 
workers  tend  to  have  higher  qualifications  and 
currently exhibit high job-to-job  mobility, reducing 
long-term 
their 
falling 
unemployment (404).  However, 
restructuring 
trends  intensify,  these  may  not  hold  up  and 
stronger  support  may  be  warranted.  Expenditure 

into 
if 

risk 

of 

(400) Source: European Business and Consumer Surveys. 

(401) EIB (2025): EIB Investment Survey – Germany Overview.  

(402) Anger, S. et al. (2025): Zentrale Befunde zu aktuellen 

Arbeitsmarktthemen 2025, IAB. 

(403) Heikkonen,  H.  -  Listl,  N.  –  Reuter,  A.  (2025):  Mapping  the 
impact  of  industrial  decline  on  European  regions.  European 
Commission, Single Market Economic Briefs, No. 16.  

(404) Duell, N. – Sold, K. (2026): Workers displaced from 

on activation measures has fallen markedly in the 
last  couple  of  decades,  from  1%  of  GDP  in  2003 
to 0.3% in 2013 and to 0.2% in 2024 (0.4% in the 
EU).  The  duration  of  short-time  work  in  industry 
can  be  extended  to  up  to  two  years  until  the  end 
of 2026 (405), but despite this possibility the take-
up  of  short-time  work  fell.  Training  during  short-
time  work  could  help  mitigate  this  trade-off. 
‘Transfer  short-time  work’  schemes  support 
displaced  workers  with  active  policy  measures  to 
find  new  jobs,  while  ‘regional  labour  market 
hubs’ (406) 
rotation  between 
employers  and  provide  career  guidance  and 
support  for  upskilling  and  reskilling.  However, 
these instruments are small in scale and have yet 
to be evaluated.  

coordinate 

job 

While  regional  labour  market  disparities  are 
moderate,  structural  change  in  the  labour 
market  is  likely  to  affect  regions  unevenly. 
Employment  rates  range  from  around  85.1%  in 
Oberbayern and 84.3% in Bayern and Schwaben to 
74.7%  in  Bremen.  Unemployment  is  highest  in 
large  cities  such  as  Berlin  (5.5%),  Leipzig  (5.2%), 
Bremen (5.1%) and Hamburg (5.3%) and lowest in 
southern and western federal states. Urban labour 
markets benefit from a dynamic service sector and 
a  younger,  better  qualified  workforce,  but  also 
exhibit higher unemployment due to greater labour 
turnover  and  a  relatively  large  share  of  low-
qualified workers. Northern regions and large cities 
(Bremen,  Hamburg  and  Berlin)  appear  resilient  to 
current 
contrast, 
Saarland,  Rheinland-Pfalz,  parts  of  Nordrhein-
Westfalen  (the  Ruhr  region),  Niedersachsen,  and 
Eastern regions such as Thüringen, Sachsen-Anhalt 
and  Brandenburg,  are  undergoing  pronounced 
structural  shifts,  with  limited  capacity  to  absorb 
displaced 
in  higher 
unemployment rates. Mecklenburg-Vorpommern is 
characterised  by 
limited  structural  dynamism 
alongside  weak  employment  growth (407).  A  key 
impediment  to  growth  is  limited  labour  market 
mobility  due  to  lack  of  affordable  housing  in 
growth poles and sticky rental markets (see Annex 
16). 

transformation 

labour,  as 

trends.  By 

reflected 

(405) https://www.recht.bund.de/bgbl/1/2025/338/VO.html. 

(406) DGB (2024): Arbeitsmarkt - Drehscheiben.  

manufacturing: their trajectories and public policies to 
support them. Report of the European Centre of Expertise 
(ECE) in the field of employment and labour market policies. 

(407) German  Council  of  Economic  Experts  (2025):  Spring  Report 
in  Germany: 

2025,  Chapter  4  –  Structural  Change 
Productivity, regional aspects and the labour market.  

102 

 
 
 
Constraints  on  the  labour  supply  of  women 
influence  the  high  part-time  and 
might 
marginal  employment  and  contribute  to 
gender gaps in income and pensions. Germany 
has  one  of  the  highest  female  employment  rates 
in the EU (77.7% vs EU:  71.3% in 2025)  but also 
exhibits  one  of  the  largest  gender  gaps  in  part-
time  employment  (37.1  pps  vs  EU:  19.7  pps  in 
2025).  Women  are  over-represented  in  marginal 
part-time  jobs  (Minijobs),  accounting  for  63%  in 
2024,  which  come  with  very  limited  coverage  for 
insurance-based  social  security  benefits.  These 
factors  contribute  to  a  relatively  high  gender 
pension  gap  (24.2%  in  2025).  20%  of  women 
working  part-time  indicate  a  preference  to  work 
more  hours,  on  average  an  extra  11  hours  per 
week (408). Obstacles to work more include the lack 
of quality early childhood education and care with 
long  opening  hours,  where  the  supply  gap  is 
estimated  to  be  300 000  places (409).  There  are 
also  provision  gaps  in  full-day  schools  where  a 
quarter of schools signal that they will not be able 
to offer all first-graders a place in autumn 2026, 
despite  this  is  a  legal  right (410).  There  is  also  a 
need  to  create  264 000  places  between  now  and 
autumn  2029 (411)  (see  Annex  13).  In  addition,  a 
lack of long-term care solutions reduces the labour 
supply:  30%  of  women  and  9%  of  men  worked 
part-time in 2025 because of caring for children or 
adults  in  need  of  care.  Gender  employment  and 
pay gaps are more pronounced among people with 
largest  for 
a  migrant  background  and  are 
refugees.  

Labour  supply  among  older  people  could  be 
increased by delaying labour market exit and 
by  encouraging  employment  beyond  the 
statutory retirement age. Employment of older 
workers  has  increased  in  recent  years,  reflecting 
the  gradual  increase  in  the  statutory  retirement 
age  and  rising  education  levels.  Nevertheless,  the 
average  effective  age  of  labour  market  exit 
remains below the statutory retirement age, by 2.4 

(408) Anger,  S.  et  al.  (2025):  Zentrale  Befunde  zu  aktuellen 

Arbeitsmarktthemen 2025, IAB. 

(409) Geis-Thöne, W. (2025): Kinderbetreuung: 300.000 Kitaplätze 

für unter Dreijährige fehlen. iwkoeln.de. 

(410) VBE  (2026),  Rechtanspruch  schützt  vor  Qualitätsdiskussion 

nicht. vbe.de. 

(411) BMBFSFJ  (2025),  Dritter  Bericht  der  Bundesregierung  zum 
Ausbaustand 
und 
Betreuungsangebote  für  Grundschulkinder  nach  §24a  SGB 
VIII. bmbfsfj.bund.de. 

ganztägigen 

Bildungs- 

der 

years  for  women  and  2.1  years  for  men.  Later 
retirement  is  more  common  in  western  Germany 
and in cities (412). Early withdrawal from the labour 
market  is  driven  by  health  constraints,  caregiving 
or job-related issues. Early retirement is relatively 
benefit 
advantageous 
reductions for early retirement for individuals with 
at least 35 working years are much lower than in 
other  countries (413).  Only  14.3%  of  people  who 
receive a pension go back to work within the first 
six months  of  retirement,  which is  lower  than  the 
OECD average of 22.4% (414).  

financially: 

pension 

large  proportion  of  persons  with 
A 
disabilities  are  employed 
in  sheltered 
workshops, working without employee status 
or  entitlement  to  the  national  minimum 
wage (415).  The  disability  employment  gap  is  22 
pps (against the EU average of 24 pps). A third of 
young  persons  with  disabilities  were  neither  in 
employment  nor  in  education  or  training  (31%  in 
2023).  

(20-64) 

Immigration  from  non-EU  countries,  along 
with  better  integration  of  people  with  a 
migrant  background,  could  be  beneficial  for 
labour  supply  amid  demographic  change.  The 
is 
number  of  working-age  people 
projected to decline by 4 million in the decade until 
2035  due  to  an  ageing  population.  Net  migration 
fell from 430 000 in 2024 to 222 000 in 2025. At 
the  same  time,  between  2024  and  2025,  there 
was  a  7.7% 
issued  for 
employment  purposes  and  the  employment  of 
non-EU  nationals 
increased  by  3.4%.  The 
employment rate of non-EU nationals (63.2%) lags 
behind  that  of  German  nationals  and  EU  mobile 
citizens  (83.9%  and  81.3%,  respectively) (416). 
According  to  the  OECD,  increasing  labour  force 
participation  among  women,  older  people  and 

in  visas 

increase 

(412) IAB  (2025):  Ältere  gehen  im  Westen  später  in  Rente  als  im 

Osten und auf dem Land früher als in Städten. 

(413) If  retiring  before  the  statutory  retirement  age,  benefits  in 
Germany  are  reduced  by  3.6%  for  each  year  under  the 
statutory  retirement  age.  This 
international 
standards.(OECD (2025): Pensions at a Glance. oecd.org. 

low  by 

is 

(414) Walwei,  U.  (2024):  Ältere  Arbeitskräfte  im  demografischen 
internationalen 

Wandel:  Beschäftigungspotenziale 
im 
Vergleich. IAB-Forschungsbericht 14/2024.  

(415) European  Semester  2025-2026  Country  fiche  on  disability 

equality: Germany. 

(416) CSR 2025.(5.3): ‘better attracting and retaining talent from 

non-EU countries.’ 

103 

 
 
 
people  with  a  migrant  background  could  increase 
annual  GDP  per  capita  growth  in  Germany  by  0.3 
pps (417).  

Real  wages  have  broadly  recovered,  with 
strong increases in the minimum wage. Wage 
growth  reached  5.1%  in  2024  and  5%  in  2025. 
Real  wages  grew  by  2.6%  in  2024  and  2.2%  in 
2025.  These  increases  follow  a  contraction  in 
2022  and  a  weak  recovery  in  2023,  with  rapid 
disinflation  contributing  to  the  current  rebound. 
Negotiated  wages,  excluding  one-off  payments, 
rose  by  4.7%  and  3.6%  year-on-year  in  Q3-  and 
Q4-2025 (418),  before  the  energy  price  increase in 
2026, partly reflecting pressures in manufacturing. 
The statutory minimum wage increased  by 41.5% 
between  January  2022  and  January  2026,  a  rise 
of around 17% in real terms. 

to 

aim 

Recent  measures 
strengthen 
collective  bargaining  coverage.  Trade  union 
density  remains  at  14.1%,  having  declined  from 
nearly  35%  in  the  early  1980s (419).  Collective 
bargaining  coverage  is  at  around  50%,  down 
26 pps  since  1998 (420).  A  recently  adopted  law 
(Tariftreuegesetz)  will  only  allow  public  contracts 
and concessions to be awarded to companies that 
offer employees working conditions that are in line 
with  collective  agreements.  A  national  plan  to 
promote  collective  bargaining,  as  required  by  the 
EU  Directive  on  Adequate  Minimum  Wages,  is  to 
be submitted by Germany.  

The  low-wage  sector  is  large,  driven  by 
incentives in social benefits and by marginal 
part-time  employment.  The  share  of  low-wage 
earners fell from 22.5% in 2014 to 19% in 2022, 
yet  it  remains  considerably  higher  than  the  EU 
average  (14.7%  in  2022).  The  prevalence  of  low 
wages  is  particularly  high  among  young  people 
(affecting  32.7%  under  the  age  of  30)  and  the 
low-qualified  (45.1%).  Wage  compression  at  the 
bottom  of  the  wage  distribution  partly  reflects 
minimum  wage  increases (421).  While  the  wage-

(417) OECD (2025): Employment Outlook – Germany.  

(418) Bundesbank (2026): Monthly Report, April 2026 – Statistical 

Annex. bundesbank.de. 

(419) OECD ICTWSS database.  

benefit  gap  has  widened  in  recent  years,  some 
disincentives  to  seek  better-paid  jobs  persist, 
linked  to  social  benefits (422).  Marginal  part-time 
employment  (Minijobs)  also  contributes  to  low-
wage  employment  (these  are  jobs  that  do  not 
provide  access  to  full  insurance-based  social 
security  benefits,  training,  jobs  with  more  hours, 
and  better  pay  and  working  conditions).  More 
broadly, the persistence of low-wage employment 
reflects fewer opportunities for upward mobility in 
the  sectors  and  contractual  arrangements  where 
low pay is prevalent (423).  

Germany is taking measures to tackle labour 
market  challenges,  but  there  is  scope  for 
further  efforts.  To  support  the  labour  supply  of 
women,  the  country  is  investing  EUR 4  billion  in 
2025-2026  in  infrastructure  and  quality  early 
childhood  education  and  care.  This 
includes 
funding  for 
learning  and  care  for 
language 
children from disadvantaged backgrounds (424) and 
the  expansion  of  all-day  schooling.  To  support 
employment  after  retirement,  Germany  has  lifted 
the  ban  on  consecutive  fixed-term  employment 
contracts  for  those  over  the  statutory  retirement 
age.  Moreover,  the  new  law  on  active  pensions 
allows  those  over the  statutory  retirement  age  to 
earn up to EUR 2 000 EUR tax-free per month. To 
encourage  longer  working  lives,  jobs  and  working 
conditions  adapted  to  older  workers  could  be 
supported,  along  with  access  to  training  and 
reduced  incentives  for  early  retirement.  Other 
measures  such  as  overtime  bonuses  provide 
for  additional  working  hours (425). 
incentives 
Reforms 
insurance  and 
marginal  part-time  employment  could  incentivise 
women to work more hours. Other incentives could 
include  flexible  work  options  and  better  access to 
long-term care. Women with a migrant background 
language 
could  be  further  assisted  through 
training, easier recognition of qualifications and by 
supporting work integration social enterprises, that 

taxation,  health 

to 

(422) Blömer,  M.  et  al. 

(2024): 

Lohnabstand  und  Arbeitsanreize 
Schnelldienst, 1/2024.  

‘Lohnt‘  sich  Arbeit  noch? 
Ifo 
im  Jahr  2024, 

(423) Duell  (2026):  Low-wage  earners  among  the  young  and  low 
qualified. Report of the ECE in the field of employment and 
labour market policies. 

(424) Eurydice 

(2025):  Germany:  National 

reforms 

in  early 

(420) Destatis: Tarifbindung von Arbeitnehmern.  

childhood education and care.   

(421) Duell  (2026):  Low-wage  earners  among  the  young  and  low 
qualified. Report of the  ECE in the field of employment and 
labour market policies. 

(425) CSR 2025. (5.1): ‘Increase labour supply and tackle the 
shortage of skilled workers, notably by increasing hours 
worked.’ 

104 

 
 
 
to 

targeted  assistance 

provide 
vulnerable 
individuals.  Germany  aims  to  facilitate  skilled 
immigration  with  a  new  Work-and-Stay  Agency 
and intends to improve  employment opportunities 
for refugees by reducing their employment ban to 
a maximum of three months.  The latter reform is 
planned for 2028. To support the redeployment of 
displaced  workers  on  a  larger  scale,  it  could  be 
beneficial  to  provide  comprehensive  packages  of 
counselling,  placement  and  training,  and  when 
needed,  temporary  and  targeted  hiring  and  wage 
subsidies.  Further  policies  could  be  beneficial  to 
labour  mobility.  Collective 
support 
bargaining  could  be  further  supported  with 
measures  to  fight  the  circumvention  of  collective 
bargaining obligations. This would make subsidies 
conditional  on  collective  bargaining  agreements 
and  provide  more  flexibility  in  working  hours  in 
exchange for collective bargaining coverage.  

regional 

105 

 
ANNEX 12: SOCIAL POLICIES 

Germany  has  a  relatively  well-developed 
welfare  system,  but  considerable  challenges 
related  to  poverty  and  inequality  remain. 
Despite  its  comprehensive  welfare  system,  the 
country  faces  persistent  pressures  from  rising 
housing costs, poverty, particularly among children 
and  non-EU-born  people,  and  high  wealth 
inequality,  all  of  which  continue  to  strain  social 
country-specific 
cohesion. 
recommendations called on Germany to safeguard 
the long-term sustainability of the pension system 
without compromising pension adequacy(426). 

2025 

The 

Poverty  and  the  risk  of  social  exclusion 
persist,  mainly  due  to  rising  living  costs.  In 
2025,  21.2%  of  the  population  were  at  risk  of 
poverty  or  social  exclusion  (AROPE),  which  is 
slightly above the EU average. The severe material 
and  social  deprivation  rate  remains  slighly  below 
the  EU  average  in  2025  (5.6%  vs  EU  6.3%), 
reflecting  sustained  pressure  on  household 
incomes  from  rising  living  costs.  Key  drivers  of 
poverty  include  rising  housing  (see  Annex  16), 
energy,  and  living  costs.  Regional  differences 
persist,  with  the  highest  AROPE  rates  recorded  in 
Bremen  (35.4%)  and  Trier  (25.8%),  with  eight 
other  regions  exceeding  24%  and  the  national 
average.  In  2025,  cities  (24.9%)  were  more 
affected than rural areas (17%).  

Severe  material  and  social  deprivation 
affected 5.6% of the population in 2025. This 
is  slightly  below  the  EU  average.  Deprivation 
worsened  between  2021  and  2023  due  to 
increases  in  the  cost  of  living,  particularly  for 
energy and transport, exacerbated by Russia’s war 
of  aggression  against  Ukraine.  Although  there 
have  been  some  recent  improvements,  they  have 
not  been  sufficient  to  offset  the  deterioration 
between  2021  and  2023.  Among  people  living 
below  the  poverty  threshold,  improvements  have 
only  been  observed  in  some  areas,  such  as 
payment  arrears, the  ability  to  afford  a  nutritious 
meal  every  two  days  and  the  ability  to  cope  with 
unexpected expenses (427).  

to 

intensity 

low  work 

increased 

Low  work 
further, 
reaching 10.3%, this being well above the EU 
average (7.9%). Germany’s 2030 national target 
is  to  reduce  the  number  of  people  living  in 
intensity  by 
households  with  very 
1.2 million,  including  300 000  children,  thereby 
contributing 
reducing  poverty  and  social 
exclusion.  In  2025,  6.4  million  individuals  were 
affected,  compared  with  5.2  million  in  2020,  the 
reference  year  used  to  assess  progress  on 
Germany’s  2030  poverty-reduction  target.  The 
European  Social  Fund  Plus  (ESF+)  contributes  to 
this  goal  by  allocating  EUR  2.16  billion  to  social 
inclusion and EUR 0.24 billion to social innovation, 
with 5.8% of ESF+ funding dedicated to combating 
child  poverty (428).  A  comprehensive  approach 
could  help  address  the  multiple  dimensions  of 
poverty  and  achieve  the  national  anti-poverty 
target. 

Graph A12.1: At-risk-of-poverty rate and its 
components 

Source: Eurostat, EU-SILC [ilc_peps01n, ilc_li02, ilc_mdsd11, 
ilc_lvhl11n] 

Child poverty has eased slightly but remains 
a concern. Germany aims to reduce child poverty 
by ensuring that parents are employed. By 2030, it 

(426) CSR  2025.1.5  ‘Improve  the  quality  of  public  finances  by 
containing transfers from the federal budget to the pension 
system and reviewing the efficiency of public spending.’ 

 CSR 2025.1.6 ‘Safeguard the long-term sustainability of the 
pension  system,  while  maintaining  pension  adequacy, 
including by promoting longer working lives and reducing the 
incentives for early retirement.’ 

(427) Paritätischer Wohlfahrtsverband (2025): Armutsbericht.  

(428) The  total  amount  of  ESF+  funding  is  EUR  6.5  billion  for  the 
2021-2027  period.  Investment  in  education  and  training 
amounts  to  around  EUR  2.04  billion.  ESF+  supports  labour 
market  measures  with  EUR  1.83  billion,  while  36.9  million 
the  Strategic 
EUR  have  been  allocated 
Technologies  for  Europe  Platform  (STEP).  13.8%  of  ESF+ 
funding is dedicated to youth employment measures. These 
investments also contribute to reducing poverty.  

to  support 

106 

051015202520152016201720182019202020212022202320242025% of populationDEAt-risk-of-poverty-or-social-exclusion rateAt-risk-of-poverty rateSevere material and social deprivationPeople living in low work intensity households 
 
 
    
     
 
 
 
seeks  to  reduce  the  number  of  children  living  in 
low work intensity households by 300 000 relative 
to  the  2020  level  of  3 144 000.  The  AROPE  rate 
for  children  declined  from  its  peak  in  2022 
(24.4%)  to  23.5%  in  2025,  remaining  below  the 
EU average (24.3%), but having increased slightly 
since  2024 
the  absolute 
(22.9%).  However, 
number  of  children  at  risk  of  poverty  or  social 
exclusion remains higher than in 2020, similarly to 
the  number  of  children  living  in  very  low  work 
intensity  households.  Children  with  a  migrant 
background are disproportionately affected. These 
trends hinder progress towards the national 2030 
target.  Germany  is  implementing  the  European 
Child  Guarantee  through  its  2023  action  plan, 
which  could  help  address  regional  shortages  in 
early  childhood  education  and  care  and  improve 
educational  inclusion.  This  is  important  because 
educational  outcomes  are  still  strongly  linked  to 
parental  socio-economic  background.  Despite 
progress in areas such as access to out-of-school 
activities  and  housing,  gaps  remain  in  ensuring 
that  children  in  need  have  access  to  key  services 
such  as  early  childhood  education  and  care, 
support to prevent early school leaving and quality 
alternative care (see Annex 13). Additional funding 
and  policy 
initiatives  aligned  with  the  Child 
Guarantee  at  state  and  municipal  levels  could 
improve implementation outcomes.  

relating 

face  significant  constraints, 

Some  groups  face  significantly  higher  risks 
of  poverty  and  social  exclusion.  In  2025, 
39.3% of people born outside the EU were at risk 
of  poverty  or  social  exclusion  (compared  with 
17.1% for the native-born population), highlighting 
to  migration 
significant  disparities 
background.  This  results  in  a  gap  slightly  above 
the  EU  average  (22.2 percentage  points  (pps), 
compared  with  21.3 pps  at  EU  level).  Refugees 
make up a substantial proportion of this group and 
often 
including 
interrupted  education  and  limited  language  skills, 
which hinder their integration into society and, for 
adults, restrict access to the labour market. Single 
parents  and  people  living  alone  continue  to  face 
the  highest  poverty  risks,  with  AROPE  rates  of 
44.3% and 35.2% respectively, while young adults 
(18–24)  and  older  people  (65  and  over)  are  also 
disproportionately  affected.  Employment  status 
remains  a  key  determinant:  unemployed  and 
inactive individuals face an especially  high risk of 
poverty  and  social  exclusion,  with  unemployed 
people in Germany being 16.1 pp. more likely to be 
at  risk  than  in  the  EU  (82.4%  in  Germany  and 
66.3%  in  the  EU).  Some  progress  has  been  made 

in  reducing in-work  poverty,  with  recent  increases 
in the minimum wage (Annex 11).  

inequalities 

Older  people,  particularly  women,  are 
exposed  to  poverty  risks.  In  2025,  21%  of 
people aged 65 and over were at risk of poverty or 
social  exclusion,  which  was  the  same  as  the 
average  for  the  total  population  and  higher  than 
the EU average (18.8%). Women (22.8%) are more 
affected  than  men  (18.7%),  reflecting  persistent 
gender 
in  careers  and  pension 
entitlements.  On  average,  women’s  pensions  are 
around  24.2%  lower  than  men’s  (429).  Accordingly, 
among  people  aged  75  and  over,  the  poverty  or 
social exclusion risk faced by women exceeds that 
faced by men by 5.7 pp. Over 730 000 pensioners 
rely  on  social  assistance  (430),  representing  about 
4%  of  the  elderly  population  –  double  the  figure 
recorded  in  2005.  However,  this  is  still  less  than 
half the proportion of the general population who 
rely  on  social  assistance.(431)  Persons  with  severe 
disabilities face particularly high risks: 40.1% were 
at  risk  of  poverty  or  social  exclusion  in  2025, 
which  is  above  the  EU  average  of  37.2%,  and 
almost  23  pps  higher  than  for  persons  without 
disabilities.  Rrecent  and  planned  pension  reforms 
can  contribute 
to  future  pension  adequacy. 
However, their impact may be undermined if parts 
of private pension savings are not protected during 
unemployment.  Improving  financial  literacy  could 
support retirement planning (see Annex 6). 

The  share  of  the  population  reporting  an 
inability  to  keep  their  homes  adequately 
warm has declined, at  5.7% in  2025, remaining 
3.1 pps below the EU average, with the rate falling 
again  after  an  increase  in  2022  and  2023.  The 
upcoming introduction of the EU emissions trading 
system  for  buildings  and  road  transport  (ETS2)  is 
projected  to  increase  households  heating  costs  at 
a  rate  similar  to  the  EU  average.  From  2026, the 
Social  Climate  Fund  is  expected  to  help  mitigate 
this  impact  through  targeted  energy  efficiency 
investments.  Transport  affordability  poses  a 
particular challenge for low-income households. In 
2025, 6.6% of German households were unable to 
afford  a  car,  which  is  above  the  EU  average  of 
5.5%.  Among  households  at  risk  of  poverty,  the 

(429) Destatis (2026), Im Fokus: Rente. destatis.de. 

(430) Destatis 

(2025),  4,1  %  mehr  Empfängerinnen  und 
im  Alter  und  bei 

von  Grundsicherung 

Empfänger 
Erwerbsminderung Ende 2024. destatis.de. 

(431) BMAS (2024), Grundsicherung im Alter. bmas.de. 

107 

 
 
percentage  was  significantly  higher  (22.3% vs  EU 
average:  16.5%).  According  to  the  2024  EU  SILC 
ad hoc module on access to services, 24.4% of the 
population  reported  not  using  public  transport 
because  of  schedule  issues  (EU  average:  13.3%), 
while  8%  cited  financial  reasons  (EU  average: 
3.4%).  The  NUTS2  regions  of  Niederbayern, 
Lüneburg  and  Trier,  where  approximately  13%  of 
the  population 
is  at  risk  of  poverty,  have 
particularly  poor  public  transport  services  (432). 
Transport  fuel  costs  are  projected  to  increase 
moderately  due 
to  ETS2,  which  could  put 
additional  pressure  on  households  that  rely  on 
private  car  travel.  Strengthening  the  affordability 
and  availability  of  public  transport  will  therefore 
be  essential.  In  areas  with  limited  access,  target-
group  specific  support  could  focus  on  zero-
emission vehicle options. 

incentives,  but 

The  reform  of  social  assistance  could 
improve  administrative  effectiveness  and 
work 
it  may  also  have 
unintended  consequences  for  some  groups. 
The  transition  from  the  existing  minimum  income 
scheme  (Bürgergeld)  to  a  new  minimum  income 
guarantee  (neue  Grundsicherung)  signals  a  shift 
towards  stricter  conditions  and  an  emphasis  on 
labour  market  integration,  based  on  expanded 
sanctioning powers for job centres. Measures such 
as enhanced monitoring, tighter housing-cost rules 
and  faster  placement  are  intended  to  strengthen 
long-term  benefit 
reduce 
accountability  and 
dependence,  potentially  improving  administrative 
effectiveness  and  engagement  with  employment 
services.  However,  the  reform  could  also  entail 
risks  that  need  to  be  addressed.  Income-reducing 
sanctions 
affect 
dependent  children,  while  housing  benefit-related 
sanctions 
and 
rental  markets. 
exacerbate  stigma 
Individuals  with  mental  health  issues,  addiction 
problems  or  limited  German  literacy  skills  may 
also be disproportionately penalised. Moreover, an 
exclusive focus on rapid job placement may come 
at  the  expense  of  necessary  skills  development 
and  vocational  training,  potentially  perpetuating 
precarious or unstable employment. 

destabilise 
tight 
in 

disproportionately 

families 

could 

could 

Rising  social  security  costs  underscore  the 
need  to  enhance  system  and  spending 
efficiency.  Social  security  contributions  are 
among  the  highest  in  the  EU  and  have  risen 

further (433), with further increases expected due to 
demographic ageing. Transfers from the budget to 
social security have also increased, posing a risk of 
crowding  out  investment  expenditure.  (See  also 
Annexes 2, 3, 11 and 15).  

The 

fairer. 

harmonising 

transparent  and 

There is scope to reform Germany’s complex 
social  welfare  system,  as  recommended  by 
the  Welfare  State  Commission.  Established  in 
August  2025,  the  Welfare  State  Commission 
(Sozialstaatskommission),  aimed  to  address  the 
inefficiencies  of  a  system  comprising  more  than 
170  benefit  schemes  administered  by  around  30 
different  agencies.  In  its  final  report,  published  in 
January  2026,  the  Commission  sets  out  26 
recommendations  to  make  the  system  simpler, 
report 
more 
recommends 
existing  welfare 
structures to create a more integrated framework 
that brings together the minimum income scheme 
(Bürgergeld,  to  become  Grundsicherung),  housing 
benefits 
allowance 
child 
(Kinderzuschlag). 
It  also  proposes  creating  a 
central  digital  portal  across  federal,  state  and 
municipal  levels,  enabling  simplified  applications, 
secure  data-sharing  across  authorities,  simplified 
procedures  and  greater  use  of  automatic  benefit 
disbursement (for example, automatic payment of 
child  benefits  following  birth).  The  Commission 
also  recommends  reducing  benefit  deductions  for 
earned 
incentives  for 
to  strengthen 
continued  or  extended  employment.  The  report 
also  calls  for  a  comprehensive  simplification  of 
legislation and administrative procedures. (434) 

(Wohngeld) 

income 

and 

High wealth inequality has an adverse impact 
on  social  fairness,  cohesion  and  mobility.  In 
Q3-2025,  Germany  had  one  of  the  highest  Gini 
coefficients  –  a  common  measure  of  wealth 
inequality  –  in  the  euro  area,  at  0.76    (euro  area 
average:  0.72(435).  The  wealthiest  10%  accounted 
for 59.6% of the country’s net wealth, and the top 
5%  for  46%,  some  of  the  highest  levels  in  the 
euro  area.  Income inequality,  as  measured  by  the 

(433) For  statutory  healthcare, 

the  average  supplemental 
contribution increased from 1.6% in 2023 to around 2.5% in 
2025 and 2.9% in 2026. For long-term care, the contribution 
rate  increased  from  3.05%  in  2022  to  3.4%  in  2023  and 
then to 3.6% in 2025. 

(434) BMAS,  2026, 

Empfehlungen 

der  Kommission 

zur 

Sozialstaatsreform, bmas.de.  

(435) ECB, 2026, Distributional Wealth Accounts and HFCS survey, 

(432) Data from Commission’s Transport Poverty Hub. 

data.ecb.europa. 

108 

 
 
 
(including  Wohlfahrtsverbände)  play  a  key  role 
delivering  care  services  in  Germany.  However, 
according  to  the  federal–state  working  groups  on 
care  and  financing  (Versorgung  and  Finanzierung, 
within  the  Zukunftspakt  Pflege)(439),  Germany’s 
current  long-term  care  insurance  system  faces 
increasing  pressures  from  demographic  change, 
rising  costs, 
responsibilities  and 
bureaucratic  complexity,  and  therefore  requires 
structural  simplification,  stronger  prevention  and 
rehabilitation  measures,  improved  coordination, 
and  more  sustainable  financing  to  remain  viable 
and socially equitable in the long term. 

fragmented 

S80/S20  ratio,  stood  at  4.7  in  2025,  close  to  the 
EU average (4.62). Furthermore, the revenue share 
from property and wealth taxation remains below 
the  EU  average  (see  Annex  3).  This  taxation 
structure 
inequality. 
Rebalancing  the  tax  mix  could  ease  pressure  on 
labour and make the tax system less distortive. 

exacerbates 

wealth 

Intergenerational 

increasingly  decisive 

Social  mobility  has  declined  substantially  in 
income 
recent  decades. 
mobility  has  declined  substantially  over  time  in 
Germany,  particularly  for  cohorts  born  from  the 
late  1970s  onwards.  Parental  income  now  plays 
an 
in  determining 
children’s  educational  attainment  and  subsequent 
earnings.  This  decline  in  mobility  has  coincided 
with  a  marked  rise  in  income  inequality,  leading 
researchers  to  describe  the  combination  of  rising 
inequality  and  falling  income  mobility  as  a  ‘toxic 
mix’(436).  

role 

Germany’s  long-term  care  system  performs 
comparatively well in terms of adequacy and 
affordability.  The  system  has  been  based  on 
compulsory  long-term  care  insurance  since  1995 
and combines extensive cash benefits with in-kind 
services. In 2022, public expenditure on long-term 
care  in  Germany  accounted  for  around  1.9%  of 
GDP,  above  the  EU  average  (1.7%).  A  relatively 
high proportion is devoted to cash benefits (36.7% 
vs 25% overall in the EU), reflecting the system’s 
strong  support  for  family-based  care.  This  is 
confirmed  by the  fact  that  the  share  allocated to 
residential care is also high (40.2%), although it is 
lower  that  the  EU  average  of  46.2%.  Germany 
the 
performs 
affordability  of  care(437).  For  people  aged  65  and 
over  with  moderate  care  needs,  public  social 
protection  covers  100%  of  home  care  costs  (EU: 
62%),  resulting  in  zero  out-of-pocket  expenditure 
(EU:  43%  of  the  median  income).  For  those  with 
severe  needs,  public  coverage  reaches  76%  for 
home  care  and  83%  for  residential  care,  both 
above  the  EU  averages.  For  care  recipients  with 
low needs coverage is 38% which is below the EU 
average of 57%(438). Social economy organisations 

relatively  well 

terms  of 

in 

(436) Baarck,  J.,  Bode,  M.,  Peichl  A.  (2025):  Rising  Inequality, 
Declining Mobility: The Evolution of Intergenerational Mobility 
in Germany. CESifo Working Paper No. 12058. ifo.de. 

(437) EU  Monitoring  Framework  on  the  Council  Recommendation 
long-term 

high-quality 

affordable 

to 
access 
on 
care.ec.europa.eu. 

payments,  are 
cross-country 
comparability  rather  than  reproduce  national  expenditure 
accounts. 

designed 

support 

to 

(438) The  OECD  model’s  assumptions  on  care  needs,  formal 
service  use,  benefit  rules  and  out-of-pocket/private  co-

(439) BMG  (2025):  Eckpunkte  für  eine  nachhaltige  Struktur  und 

Finanzierungreform, bmg.de. 

109 

 
 
 
 
the 

Fund 

under 

2026). 

and 
planned 

Special 
Climate 
in 

Germany  is  making  efforts  to  expand  ECEC 
capacity  and  improve  quality,  but  some  key 
measures  have  not  been  launched  yet.  To 
enhance  ECEC  quality,  the  federal  government  is 
funding the ‘Third Act  for Further Development of 
Quality  and  Participation  in  Child  Day  Care’  and 
measures 
for 
Neutrality 
Infrastructure 
The 
(EUR 940 million 
Startchancen-Kitas  programme  announced  in  the 
2025  coalition  agreement,  aiming  to  invest  in 
ECEC  in  disadvantaged  areas  and  in  language 
learning,  has  not  been  launched  yet  (443).  The 
coalition  agreement  also  proposes  mandatory 
diagnostics  of  German  language  proficiency  for 
four-year-olds,  with 
support 
measures  in  collaboration  with  the  Länder,  but 
details  have  not  been  announced  yet.  Currently, 
language  assessments  vary  significantly  between 
Länder,  with  only  seven  Länder  conducting 
language  assessments  before 
comprehensive 
school  enrolment;  seven  others  target  specific 
groups  and  two  do  not  perform  comprehensive 
assessments  (444).  Language  assessments  support 
the  early  detection  of  learning  difficulties  to  help 
children acquire basic skills. 

corresponding 

Graph A13.1: Early leavers from education and 
training, of those aged 18-24 

ANNEX 13: EDUCATION AND SKILLS 

Germany’s  education  and  training  system  is 
facing  widening  skills  and  equity  gaps  as 
well  as  rising  rates  of  low  qualified  young 
people,  leading  to  human  capital  losses  and 
skills  shortages.  Persistent  unmet  demand  for 
early  childhood  education  and  care  (ECEC)  is  a 
drag  on  labour  force  participation.  Declining  basic 
skills  and  increasing  numbers  of  early  school 
leavers exacerbate socio-economic disparities and 
hinder 
labour-market  entry.  Although  adult 
learning rates are high overall, limited funding and 
flexibility  of  training  opportunities,  as  well  as 
low-
insufficiently  targeted  outreach  towards 
skilled  and  unemployed  learners  currently  restrict 
greater  adult  participation  in  training,  particularly 
in  strategic  economic  sectors.  The  2025  country-
specific  recommendations  (CSRs)  for  Germany 
highlighted  the  need  to  improve  the  availability 
and quality of ECEC and whole-day schools, and to 
strengthen  basic,  green  and  digital  skills  to 
improve education outcomes (440). 

children 

(28.3%) 

compared 

Demand  for  ECEC  remains  partly  unmet, 
reducing  workforce  participation.  In  2025, 
26.2% of children under three attended ECEC (EU 
average:  40.5%),  far  below  the  2030  national 
target  of  40.4%.  Participation  is  higher  among 
to 
advantaged 
disadvantaged  ones  (13.8%).  The  gap  between 
parental  need  and  ECEC  participation  for  under-
three-year-olds was 16.2% in western Germany in 
2024, and 7% in the east (441) (see also Annex 11). 
Staff  shortages  persist.  By  2030,  western 
Germany  might 
to  88 400 
additional  ECEC  staff,  while  eastern  Germany 
anticipates a surplus by 2035 (442). Among children 
between  three  years  old  and  school  age,  ECEC 
participation  is  relatively  high  (95.3%  vs  an  EU 
average of 94.6% in 2023). 

require  51 200 

(440) CSR 2025.5.2: ‘strengthening basic, green and digital skills‘; 

CSR  2025.5.4:  ‘Improve  education  outcomes,  including  by 
promoting  excellence  and  providing  targeted  support  to 
disadvantaged groups.’; 

CSR  2025.5.5:  ‘Improve  the  availability  and  quality  of  early 
childhood  education  and  care  and  whole-day  schools  to 
encourage  carers,  often  women,  to  work  and  to  promote 
equal opportunities for all children.’ 

Source: Eurostat (edat_lfse_14) 

(441) BMBFSFJ 

(2025). 

Kindertagesbetreuung 

Kompakt. 

(443) Koalitionsvertrag  zwischen  CDU,  CSU  und  SPD,  21. 

Ausbaustand und Bedarf 2024, p. 22.  

Legislaturperiode. 

(442) Meiner-Teubner, Ch. et al. (2024). Plätze. Personal. Finanzen. 

(444) Autor:innengruppe Bildungsberichterstattung (2024). Bildung 

Teil 1, p. 21.  he 

in Deutschland 2024, p. 121. 

110 

10.110.110.312.313.13.102468101214201520172019202120232025%DEEU 
 
 
 
 
   
 
 
 
Early  school  leaving  rates  are  high  and 
increasing,  particularly  affecting  individuals 
born  outside  of  Germany  and  those  with 
disabilities.  In  2025,  13.1%  of  18-24-year-olds 
had  no  or  low  qualifications,  meaning  lower 
secondary  education  at  most  (EU  average:  9.1%). 
Early  leaving  from  education  and  training  has 
increased  since  2021,  compared  to  a  downward 
trend  across  the  EU  on  average.  Rates  are  higher 
than  the  EU  average  across  all  groups,  although 
there  are  significant  discrepancies  between  them. 
German natives have an early leaving rate of 10% 
(EU  average:  7.7%).  At  32.1%,  the  rate  is  higher 
for  individuals  born  in  other  EU  countries  (EU 
average:  18.9%),  compared  to  26.8%  for  those 
born  outside  the  EU  (EU  average:  20.8%).  For 
individuals  with  some  disabilities,  the  rate  was 
22.2%  in  2024  (EU  average:  17.1%),  while  those 
with  severe  disabilities  had  a  rate  of  52.7%  (EU 
average:  44.2%).  Regionally,  Bremen,  Berlin, 
Schleswig-Holstein, Saarland, Rhineland-Palatinate 
and  Lower  Saxony  face  an  early  leaving  rate 
above 14%, while only Bavaria and Saxony report 
rates below 12% (445).  

last  decade,  the 
in  basic 

increase 
in 
Over  the 
underachievement 
skills  has 
hindered  human  capital  development  and 
widened socio-economic disparities. Between a 
quarter and a third of  15-year-olds underperform 
in  mathematics,  reading  and  science  (446).  While 
the share of top performers remains above the EU 
average, the decline is more pronounced than the 
EU  average,  with  mathematics  seeing  the  largest 
drop: -4.7% between 2018 and 2022 (EU average: 
In  2022,  46.6%  of  students  from 
-3.1%). 
disadvantaged  backgrounds 
reach 
minimum proficiency in mathematics, a noticeable 
rise  from  29.8%  in  2015.  Additionally,  two  thirds 
(64%)  of  students  born  abroad  underachieve  in 
mathematics,  compared 
to  21.9%  of  non-
immigrant  students,  further  contributing  to  the 
widening  socio-economic  gap  in  education.  To 
address these challenges, the federal government, 
in  collaboration  with  the  Länder,  is  implementing 
several  initiatives.  The  Startchancen  programme 
launched  in  the  2024/2025  school  year,  funded 
with  EUR 20 billion  over  10  years,  aims  to  bridge 
socio-economic gaps, targeting a 50% reduction in 

failed 

to 

(445) Statistische  Ämter  des  Bundes  und  der  Länder  (2025). 
Internationale  Bildungsindikatoren  im  Ländervergleich  2025, 
p. 41. 

(446) OECD, 2022 PISA. 

underachievement in mathematics and German at 
participating  schools.  The  programme  aims  to 
cover  around  4 000  schools  and  around  10%  of 
students. As the programme is in the early stages 
of  implementation,  results  are  not  yet  available. 
Germany  has  one  of  the  earliest  and  most 
stringent  systems  for  separating  educational 
pathways,  at  around  the  age  of  10.  Delaying 
tracking,  making  assignment  to  tracks  more 
increasing  permeability 
inclusive  and  further 
improve  educational 
between  pathways  could 
outcomes 
performers,  without 
deteriorating outcomes of better performing pupils 
(447). 

of  weaker 

(448).  To  address 

service,  attracting 

Germany  is  facing  teacher  shortages  and 
anticipates that the legal entitlement to all-
day  primary  school  care  will  be  only  partly 
fulfilled.  The  Standing  Conference  of 
the 
Ministers  of  Education  and  Cultural  Affairs  (KMK) 
forecasts a shortage of 49 000 teachers by 2035, 
including  a  deficit  of  43 000  in  lower  secondary 
schools 
teacher  shortages, 
Germany  has  taken  measures  such  as  improving 
‘career 
the  preparatory 
changers’ (Quereinsteiger) and encouraging retired 
teachers to return to the classroom (449). The KMK 
and the Länder have launched initiatives to attract 
more  teachers  as  short-term  solutions,  without 
structural  reforms  of  mainstream  initial  teacher 
education 
include 
Such 
qualifications  for  single-subject  teachers,  dual 
training  programmes  and  master’s 
teacher 
programmes  for  career  changers.  From 
the 
2026/2027 school year, all primary school children 
will  have  a  legal  entitlement  to  all-day  care, 
initially applying to every child in the first year of 
school.  The  federal  government  anticipates  a 
shortage  of  30 000  to  65 000  places  at the  time 

solutions 

(450). 

(447) McNamara,  S.,  &  Klein,  T.  (2025).  Folgen  (zu)  früher 
Leistungsdifferenzierung:  Lehren  aus  Ungarn 
für  das 
deutsche  Schulsystem.  Wirtschaftsdienst,  105(9),  671-678. 
Wirtschaftsdienst.de. 

(448) KMK  (2024).  Lehrkräfteeinstellungsbedarf  und  -angebot  in 
– 

der 
Zusammengefasste Modellrechnungen der Länder.  

Bundesrepublik 

Deutschland 

2024-2035 

(449) KMK (2022). Gemeinsame Leitlinien der Länder zur Deckung 

des Lehrkräftebedarfs.   

(450) KMK 

(2024).  Maßnahmen  zur  Gewinnung  zusätzlicher 
der 
strukturellen 

Ergänzung 

zur 

Lehrkräfte 
und 
Lehrkräftebildung.  

111 

 
 
 
the  entitlement  comes  into  effect  (451).  All-day 
schooling  not  only  facilitates  greater  labour-
market  participation  among  caregivers  but  also 
provides  learning  opportunities  that  particularly 
benefit disadvantaged students. 

Germany  is  behind  the  EU  average  in  terms 
of public investment in education relative to 
GDP.  In  2023,  public  expenditure  on  education 
was  below  the  EU  average  in  terms  of  both  the 
share of total expenditure (9.2% vs 9.6%) and the 
share  of  GDP  (4.5% vs  4.7%).  However,  the  costs 
of  vocational  training  as  part  of  the  dual  system 
are  primarily  covered  by  private  stakeholders. 
Municipalities  identified  an  investment  gap  of 
EUR 67 billion in schools in 2024 (452). The German 
Council  of  Economic  Experts,  in  its  2025/2026 
report,  identifies  substantial  investment  needs  in 
general  education.  It  recommends  establishing  a 
permanent  public 
fund  with 
minimum  investment  quotas  for  education  set  at 
Länder  level,  for  example  as  expenditure  per 
pupil (453).   

infrastructure 

Skills  shortages  affect  all  skills  levels  in 
Germany.  There  is  a  strong  demand  for  skilled 
professionals  with  vocational  education  and 
training  (VET)  and  higher  education  qualifications, 
including  in  science,  technology,  engineering  and 
mathematics  (STEM)  fields.  By  2030,  over  half 
(54%)  of  Germany’s 
job  openings  will  need 
medium-level qualifications (12 percentage points 
higher  than  the  EU  average),  and  demand  will 
increase  for  jobs  requiring  higher  qualifications 
healthcare 
(including 
specialists) (454). 
especially 
Shortages 
widespread in Bavaria and Rhineland-Palatinate, in 
particular 
in  manufacturing  and  healthcare 
professions.  High  demand  for  IT  and  scientific 
in 
professionals 
southern and eastern Germany (455). Measures that 
can  help  manage  the  decline  of  employment  in 
manufacturing  linked  to  restructuring  (see  Annex 
11)  include  promoting  targeted  upskilling  and 

is  particularly  pronounced 

engineers 

and 

are 

reskilling,  updating  vocational  training,  adapting 
curricula  and  increasing  investment  in  new  net-
zero  technologies  in  VET  schools  and  training 
centres.  Better  access  to  upskilling  and  reskilling 
for  under-represented  groups  in  adult  learning, 
including  people  with  a  migrant  background,  can 
improve  the  availability  of  skills  for  shortage 
occupations.  In 2023, Germany hosted the highest 
number  of  migrants  in  the  EU  in  absolute  terms 
(12.3  million),  including  27%  of  all  Ukrainian 
refugees  that  fled  to  the  EU.  In  2024,  30%  of 
these  migrants  were  overqualified,  mostly 
women (456), widening the migrant gender pay gap 
(30%) (457).  Measures  that  can  help  to  better 
match  qualifications  with  jobs  include  providing 
adequate 
language  training,  facilitating  skills 
validation  and  recognition,  streamlining  migration 
(458),  and  offering  more  flexible 
procedures 
upskilling  and 
The 
reskilling  opportunities. 
European  Social  Fund  Plus  (ESF+)  co-funded  the 
Network  IQ  project,  which  offers  counselling  for 
skills validation and  recognition. Whereas national 
skills  intelligence  forecasts  produced  by  the  BA 
and  BIBB(459)  support  policymaking,  stronger 
coordination between the regional and the national 
methodologies  for  employment  forecasting  could 
improve comparability and cross-regional analysis. 

in 

information  and 
While  employment 
communications  technology  (ICT)  and  green 
jobs grew more than brown skills hiring (460), 
reforms are not targeted enough to meet the 
skills demands of the twin (green and digital) 
transition.  The  employment  share  in  energy-
intensive 
vehicle 
manufacturing,  was  comparatively  high  in  2024 
(4.8%), but has been declining recently (see Annex 
11).  Yet,  worker  participation  in  training  within 
these  industries  remains  below  the  EU  average, 
and  several  occupations  crucial  to  the  energy 
transition  face  shortages,  such  as  renewable 
energy technology, plumbing, heating, and roofing 
(461).  While  the  share  of  ICT  specialists  in  total 

industries, 

primarily 

(451) Bundesregierung  (2025),  Dritter  Bericht  zum  Ausbaustand 
der  ganztägigen  Bildungs-  und  Betreuungsangebote  für 
Grundschulkinder. 

(452) KfW (2025), Kommunalpanel. kfw.de. 

(453) Sachverständigenrat,  2025,  Jahresgutachten  2025/26, 

sachverstaendigenrat-wirtschaft.de. 

(454) CEDEFOP (2023): Skills forecast Germany. 

(455) Bundesagentur für Arbeit (2024): Fachkräfteradar. 

(456) DG EMPL (2025), ESDE Quarterly review 2025.  

(457) IQ  Fachstelle Einwanderung  und Integration  (2025):  Migrant 
(Gender)  Pay  Day:  Bis  wann  arbeiten  Migrant*innen 
„umsonst“?. 

(458) Bertelsmann (2023): Studie Ausländerbehörden zwischen 

Anspruch und Alltag. 

(459) BA (Federal Employment Agency) and BIBB (Bundesinstitut 

für Berufsbildung). 

(460) IAB (2025): Firms in the green transition - IAB-Forum. 

(461) BA (2025): The green transition of the labour market. 

112 

 
 
 
of 

reported 

enterprises 

employment  (5.3%)  is  around  the  EU  average 
in  Germany  have  more 
(5.0%),  companies 
difficulties to fill ICT vacancies than their EU peers 
(8.7% 
hard-to-fill 
vacancies for ICT specialist roles vs an EU average 
of  5.5%  in  2024).  Young  people’s  interest  in 
green-skills  apprenticeships  has  grown.  The 
number of filled green-skills positions increased by 
14%  between  2013  and  2021,  suggesting  that 
‘greening’  VET  enhances  its  appeal,  except  in 
regions  facing  structural  transition (462).  The  Skills 
and  Training  Radar  also  highlights  twin-transition 
positions  with  limited  substitution  options  and 
insufficient VET training capacity (463). 

Digital  skills  are  improving  gradually  but 
remain  uneven,  with  persistent  gaps  by 
educational  attainment.  In  2025,  59.6%  of 
adults  had  at  least  basic  digital  skills,  nearly 
reaching  the  EU  average  of  60.4%.  Rural  areas 
remain  slightly  below  the  EU  average  (51.9%  vs 
52.8%).  Educational  attainment  plays  a  key  role: 
77.4%  of  highly  educated  adults  have  at  least 
basic  digital  skills  (EU  average:  82.3%),  but  only 
35.4%  of  those  with  low  or  no  education  do  (EU 
average: 37.6%) (464). Among eighth graders, 41% 
lacked  basic  digital  skills  in  2023  (465).  Recent 
action  has  more  strongly  focused  on  digital 
education  (e.g.  the  December  2025  ‘Digitalpakt 
Schule  2.0’ 
for 
EUR 5 billion  of  federal  and  Länder  support  for 
digital  education  in  2026-2030).  13%  of  the 
‘Digitalpakt  1.0’  funds  were  allocated  to  VET 
schools  and  their  pupils  account  for  around  20% 
of  the  total  number  of  pupils  across  all  types  of 
schools  (466),  while  the  2025  country-specific 
recommendation  covers  digital  skills  of 
the 
working  population (467).  The  Recovery  and 

initiative  paved 

the  way 

(462) IAB (2024): Vocational training: Occupations with green skills 

are in high demand - IAB-Forum. 

(463) BIBB / Berufe- und Kompetenzradar. 

(464) Eurostat,  Table  ISOC_SK_DSKL_I21:  Individuals'  level  of 

digital skills. 

(465) IEA, 2023, ICILS. 

(466) BMBF:  Fortschrittsbericht  DigitalPakt  Schule  2023–2024;  
Destatis:  Allgemeinbildende  und  Berufliche  Schulen  – 
Schnellmeldung  Schülerinnen  und  Schüler.  Schuljahr  2025-
26.  

Resilience  Facility  also  supports  digital  education 
investments.  

in  skills  gaps, 

is  strong  but  faces 
The  VET  system 
challenges 
labour-market 
relevance and access to training, particularly 
affecting  vulnerable  groups.  Work-based 
learning reached 93% in 2025 (EU average: 66%) 
and the employment rate for VET stood at 91,5 % 
in  2025,  compared  to  an  EU  average  of  80,2%. 
Initiative 
The  Vocational  Education  Excellence 
(2022)  promotes  modern 
training  methods 
through  digitalisation  and  increasing  international 
mobility  and  partnerships 
in  VET.  However, 
declining  basic  skills  and  equity  issues  in  the 
German  school  system  undermine  success  in 
in-company  apprenticeships  after 
accessing 
mandatory  school,  and  hence  quality  jobs  later, 
also  in  strategic  sectors  in  high  demand.  In 
2024/2025, only 43% of 444 000 applicants were 
able  to  secure  a  position  (ISCED  5),  the  lowest  in 
25  years,  while  38%  became  unemployed.  Only 
33% of foreign applicants were successful, against 
46%  of  German  nationals.  Hamburg,  Berlin, 
Schleswig-Holstein, Brandenburg and North Rhine-
Westphalia 
unplaced 
applicants (468). 
In  specific  cases,  the  Act  to 
Strengthen  Vocational  Training  and  Skills  covers 
part  of  the  wage  and  training  costs  through 
subsidies from the public employment service. The 
act includes a training guarantee that offers intra-
regional mobility grants, covering the first year of 
in-company 
targeted  unplaced 
for 
applicants.  However,  in  2025,  demand  exceeded 
the  7 000  subsidised  placements (469).  The  ESF+ 
co-funds  inter-company  apprenticeship  training 
(Überbetriebliche  Lehrlingsunterweisung, ÜLU)  and 
learning workshops (Bildungs/Jugend-werkstätten). 
Career counselling, psycho-social support (470) and 
in  upper 
support  to  basic  skills  for  pupils 
secondary VET could help address equity gaps.  

the  most 

reported 

training 

STEM  education  is  relatively  popular,  but  its 
full  potential  for  competitiveness  is  not  yet 
used.  Germany  has  a  comprehensive  STEM 
strategy  from  ECEC  to  higher  education,  and 
enrolment 
is 
significantly  higher  than  in  the  EU  on  average 

tertiary  STEM  programmes 

in 

(468) Bundesagentur  für  Arbeit  (2025):  AM-kompakt-Situation-

Ausbildungsmarkt.pdf p. 15. 

DIHK (2023): Schulische Bildung verbessern - Fachkräfte für 
die Wirtschaft sichern. 

(469) Bundesagentur für Arbeit (2025): AM-kompakt-Situation-

Ausbildungsmarkt.pdf. 

(467) CSR 2025.5.2: ‘strengthening basic, green and digital skills’. 

(470) Monitor Bildung und psychische Gesundheit BiPsy-Monitor. 

113 

 
 
 
in  2025),  with 

(35.5% vs 26.9% in 2023). However, this needs to 
be seen in the context of an overall lower tertiary 
educational  attainment  rate  (40.9%  vs  an  EU 
average  of  44.8% 
regional 
disparities  (see  Annex  19).  In  addition,  women 
remain  under-represented:  they  make  up  only 
29.7%  of  STEM  students  at  tertiary  level  (EU 
average:  32.2%),  with  especially  low  rates  in  ICT 
and  engineering.  The  number  of  international 
STEM  students  has  risen  significantly  in  recent 
years,  while  an  even  higher  rate  of  international 
STEM 
in  Germany  after 
graduation could contribute to higher growth rates 
and have a net positive impact on public finances 
(471).  In  2024,  33.3%  of  students  in  medium-level 
VET  programmes  pursued  STEM  fields,  slightly 
below  the  EU  average  of  36.6%.  In  VET  STEM 
programmes,  female  enrolment  was  10.0%  (EU 
average:  15.9%),  with  particularly  low  rates  in 
Brandenburg 
(9.4%),  North  Rhine-Westphalia 
(9.6%) and Saarland (9.7%) (472). 

students 

staying 

issues  could 

foreign  nationals  (over  50%) (476).  Measures  to 
include  providing 
address  these 
psycho-social  support  and  increased  basic  skills 
training, especially for parents and single parents, 
including 
financial  education  and  extended 
language courses when needed. It is key to ensure 
labour-market  relevance  of  skills  in  cooperation 
with  social  partners,  and  to  expand  partial 
qualifications  and  on-the-job  training.  In  the  area 
of lifelong learning there is room to support skills 
portability, 
transparency  by 
expanding  micro-credentials  and  badges  (477)  as 
validation  procedures  are  currently  too  expensive 
for vulnerable groups (478). Implementing individual 
learning accounts could boost adult learning in line 
with  labour-market  needs.  The  government  has 
‘Alpha 
not  yet  announced  the  successor  of 
Decade’, the main national measure to boost basic 
skills  among  adults.  Further  targeted  support  for 
firms  investing  heavily  in  training  and  the  twin 
the  perceived 
transition  could  help  address 
underinvestment in training (479). 

validation  and 

Participation  in  adult  learning  exceeds  the 
EU average, but more flexibility, funding and 
targeted  outreach  could  help  tackle  labour 
shortages and structural change. Overall, adult 
learning  participation  (53.7%)  surpassed  the  EU 
average  (39.5%)  in  2022.  Yet,  in  2023,  company 
training  was  still  below  pre-pandemic  levels (473). 
Increased public–private partnerships and stronger 
social  partner  involvement  in  adult  learning  and 
strategic sectors could improve outcomes. Training 
participation  is  lower  among  those  with  low 
qualifications 
(30%)  and  unemployed  people 
(31.7%)  than  among  those  with  medium  (49.9%) 
or  high  (71.5%)  qualifications  and  employed 
people (58.4%) (474). The country also shows larger 
literacy  gaps  by  education,  income  and  family 
background  than  the  respective  OECD  averages  – 
and  the  widest  of  all  PIAAC  countries (475).  Work-
income 
capable  beneficiaries 
receiving  basic 
support  are  mainly  25-49-year-olds 
(53%), 
without a vocational diploma (68%) and are often 

(471) Geis-Thöne  et  al.  (2025),  Volkswirtschaftliche  Effekte  der 

Zuwanderung über die Hochschulen. 

(472) BMBFSFJ-  Anteil  von  Frauen  und  Männern  in  beruflichen 

(476) PD Dr. Joachim Wolff (IAB, 2025) calculations on data of the 

Ausbildungen zu MINT-Berufen - Open Data Portal. 

Bundesagentur für Arbeit. 

(473) IAB (2025): Forschungsbericht.  

(474) Bilger,  F.  &  Koubek,  E.  (2024).  Weiterbildungsverhalten  in 
Deutschland 2022. Ergebnisse des Adult Education Survey –
AES-Trendbericht). 

(475) Network  of  Experts  in  Adult  Learning  (2025)  Country  report 

(477) DIE 

(2025): 

und 
Herausforderungen  und  Lösungsansätze 
Lernnachweise in der Erwachsenen- und Weiterbildung. 

Microcredentials 

Badges 
– 
für  digitale 

(478) Validierungsverfahren:  Berufliche  Kompetenzen  zertifizieren 

lassen - IHK Südlicher Oberrhein. 

on basic skills, p. 11-12. 

(479) IAB (2025): IAB-LinkedIn-Branchenwechsel-Radar. 

114 

 
 
 
ANNEX 14: SOCIAL SCOREBOARD 

Table A14.1:Social Scoreboard for Germany 

Update of 4 May 2026. Members States are categorised based on the Social Scoreboard according to a methodology agreed with 
the EMCO and SPC Committees. Please consult the Annex of the Joint Employment Report 2026 for details on the methodology 
(https://employment-social-affairs.ec.europa.eu/joint-employment-report-2026_en). 
Source: Eurostat 

115 

53.713.159.69.56.84.6881.13.81.1116.221.223.534.023.011.226.21.0Critical situationTo watchWeak but improvingGood but to monitorOn averageDynamic labour markets and fair working conditionsSocial protection and inclusionShare of individuals who have basic or above basic overall digital skills(% of the population aged 16-74, 2025)Impact of social transfers (other than pensions) on poverty reduction(% reduction of AROP, 2025)Children aged less than 3 years in formal childcare (% of the under 3-years-old population, 2025)Self-reported unmet need for medical care (% of the population aged 16+, 2025)Disability employment gap (percentage points, population aged 20-64, 2025)Housing cost overburden (% of the total population, 2025)Adult participation in learning (during the last 12 months, excl. guided on the job training, % of the population aged 25-64, 2022)Equal opportunities and access to the labour marketBest performersBetter than averageEarly leavers from education and training(% of  the population aged 18-24, 2025)Young people not in employment, education or training(% of the population aged 15-29, 2025)Gender employment gap(percentage points, population aged 20-64, 2025)Income quintile ratio (S80/S20, 2025)At risk of poverty or social exclusion (AROPE) rate (% of the total population, 2025)Employment rate(% of the population aged 20-64, 2025)Unemployment rate(% of the active population aged 15-74, 2025)Long term unemployment(% of the active population aged 15-74, 2025)Gross disposable household income (GDHI) per capita growth(index, 2008=100, 2024)At risk of poverty or social exclusion (AROPE) rate for children(% of the population aged 0-17, 2025) 
 
 
 
  
 
 
ANNEX 15: HEALTH AND HEALTH SYSTEMS 

Germany’s  health  system  faces  challenges 
which  negatively  affect  the  health  of  its 
population,  social  fairness  and  productivity. 
Population ageing, combined  with lifestyle-related 
risk  factors  -  especially  among  lower-educated 
groups  -  contribute  to  growing  morbidity  and 
disability.  Germany 
the  EU 
countries with the highest hospital admission rates 
in  particular 
for  selected  chronic  conditions, 
congestive  heart  failure,  reflecting  weak  care 
coordination and over-reliance on inpatient care. It 
puts increasing pressure on the healthcare system. 
In response, Germany is advancing broad reforms 
to improve efficiency, reduce hospitalisations, and 
strengthen outpatient care. 

figures  among 

Graph A15.1: Life expectancy at birth, years 

causes of morbidity and disability. There were over 
1  million  estimated  new  cases  of  CVDs  in  2021. 
Ischaemic heart disease is the most common CVD, 
with  an  estimated  441  000  new  cases  each  year 
in  Germany,  representing  36%  of  all  new  cases. 
Germany’s 30-day hospital mortality rate stood at 
8 deaths per 100 patients due to heart attacks in 
2023,  which  is  higher  than  the  EU  average.  By 
contrast,  the  30-day  hospital  mortality  rate  for 
ischaemic  stroke  was  7  per  100,  which  is  below 
the  EU  average,  suggesting  the  presence  of 
effective acute care structures, such as specialised 
stroke units and standardised treatment pathways.  

Graph A15.2: Treatable mortality 

Source: Eurostat (indicator: demo_mlexpec) 

Age-standardised death rate - mortality that could be avoided 
through optimal quality healthcare. 
Source: Eurostat (indicator: hlth_cd_apr) 

despite 

mortality, 

Life  expectancy  at  birth  in  Germany  stands 
just  below  the  EU  average,  with  stable 
treatable 
some 
fluctuations in recent years (see Graph A15.1). 
Germany  performs  relatively  well  in  preventing 
deaths  from  treatable  conditions,  with  rates 
remaining  stable  over  the  past  decade,  indicating 
an  effective  healthcare  system  despite  limited 
improvements.  Diseases  of  the  circulatory  system 
(cardiovascular  diseases  CVDs)  are  the  leading 
cause of death  - with rates slightly above the EU 
average in 2023. CVD death rates are followed by 
cancer,  with  large  disparities  between  regions. 
Taken  together  CVDs  and  cancer  accounted  for 
56% of all deaths in 2023. The suicide rate is also 
slightly  above  the  EU  average,  showing  limited 
improvements in the last decade 

Preventable mortality was just above the EU 
average  in  2023.  The  share  of  healthcare 
spending  allocated  to  prevention  fell  sharply  in 
2023  despite  being  still  above  the  EU  average 
(4.8% vs 3.7%) (480). About 530 000 new cases of 
cancer were expected to be diagnosed in Germany 
in 2022, and almost 4.9 million people were living 
with the  condition  in  2020  according to  European 
Cancer  Information  System  (ECIS)  (481)  estimates. 
The high prevalence rate highlights the importance 
of  focusing  on  the  quality  of  life  of  cancer 
patients,  living  longer.  Germany  has  implemented 
and expanded population-based national screening 
programmes  for  breast,  colorectal  and  cervical 
cancer.  A  national 
screening 
programme  for  high-risk  groups  aged  50-75  was 
introduced  as  a  service  covered  by  statutory 
health insurance on 1 April 2026. These initiatives 

cancer 

lung 

Germany's  population  is  rapidly  ageing,  with 
implications  for  healthcare  (see  Annex  2).  In 
2024,  22%  of  the  German  population  were  aged 
65  and  over,  a  share  projected  to  rise  to  28%  by 
2050.    CVDs  and  cancer  are  both  the  leading 
causes  of  death  in  Germany  and  the  leading 

(480) OECD/European Observatory on Health Systems and Policies 
(2025), Country Health Profile 2025: Germany. State of 
Health in the EU. 

(481) ECIS - European Cancer Information System | ECIS - 

European Cancer Information System. 

116 

81.180.880.781.181.2808080.681.481.520202021202220232024GermanyEU87.481.880.881.383.483.394.889.291.793.389.786.8201420192020202120222023per 100 000 populationGermanyEU 
 
       
       
 
 
Table A15.1:Key health indicators 

*The EU average is weighted for all indicators except for doctors and nurses per 1 000 population, for which the EU simple 
average is used based on 2023 data (or latest available). Doctors’ density data refer to practising doctors in all countries except 
Greece, Portugal (licensed to practise) and Slovakia (professionally active). Density of nurses: data refer to practising nurses (EU 
recognised qualification) in most countries except Portugal (licensed to practice) and Slovakia (professionally active). Latest data 
update on nurses for Belgium and Sweden: 2022; for France: 2021; for Luxembourg: 2017. 
** latest available 10-year trend: ratio 2023/2014 or 2024/2013; a factor of 2.00 means that it has doubled in 10 years. 
***‘Available hospital beds’ covers somatic care, not psychiatric care. 
Source: Eurostat 

are  closely  aligned  with  the  Europe’s  Beating 
Cancer  Plan  and  are  supported  by  Germany’s 
National Cancer Plan and National Decade Against 
Cancer, both of which aim – among other things - 
to  further  develop  early  detection,  promote 
outreach  and 
innovations.  Germany 
participates  in  several  joint  actions  funded  by 
EU4Health,  aimed  at  preventing  cancer  and  other 
(482),  while  also 
non-communicable  diseases 
developing networks for better care (483), including 
European Reference Networks (ERNs) for rare and 
complex diseases. 

introduce 

Preventable  mortality  in  Germany  is  closely 
linked  to  lifestyle  behavioural  risk  factors, 
especially  for  people  with  lower  levels  of 
education.    Alcohol  consumption  among  adults 
remains  slightly  higher  than  the  EU  average  in 
2022.  The  proportion  of  15-year-olds  who 
reported  having  been  drunk  more  than  once  in 
their  life  shows  a  more  concerning  trend,  with  an 
increase from 25% in 2014 to 31% in 2022, which 
stood much higher than the EU average. The share 
of  obesity  is  slightly  above  the  EU  average.  Poor 
nutrition is a main driver of rising trends in people 
being overweight  and obese. Only around 55% of 
Germans  report  consuming  vegetables  daily  (EU 
average  60%),  while  the  consumption  of  fruit  is 
the same as the EU average. As in other countries, 

(482) JA PreventNCD - Reducing Europe's cancer and NCD burden 
through coordinated strategies on health determinants. 

many  behavioural  risk  factors  in  Germany  are 
more common among people with lower education 
levels. People with lower levels of education were 
almost  70%  more  likely  to  be  obese  (484).  The 
share  of  adults  smoking  daily  in  Germany  has 
fallen  over  the  past  decade  –  from  21%  in  2013 
to 15% in 2021, which is below the EU average of 
19%.  However,  smoking  among  15-year-olds  has 
increased,  with  17%  reporting  that  they  had 
smoked in the past month in 2022, up from 15% 
in  2018.  This  figure  is  now  equal  to  the  EU 
average.  The  regular  use  of  vaping  products 
among young adults is higher than the EU average 
(4.8% vs 2.7%). In response and as highlighted in 
the  medium-term  fiscal  and  structural  plan 
(MTFSP),  the  federal  government  will  draw  up  a 
proposal to review and update the existing tobacco 
duty  framework.  Furthermore,  in  May  2024  the 
Federal  Government  of  Germany  introduced  its 
National  Suicide  Prevention  Strategy  Germany 
2024,  outlining  measures  and  recommendations 
to  strengthen  suicide  prevention,  with  a  focus  on 
health  literacy  and  empowerment,  psychosocial 
counselling and support, and improved networking 
and coordination. 

A  large  share  of  Germany’s  health  spending 
is  earmarked  for  inpatient  care.  With  health 
spending per capita among the highest in the EU, 
the  system  remains  strongly  hospital-focused. 
Inpatient  care  accounted  for  27%  of  spending  in 

(483) JANE-2; EUnetCCC JA - The European Comprehensive Cancer 

(484) Country Health Profile 2025: Germany – see earlier 

Centre Network. 

Footnote. 

117 

2020202120222023202410-year change**EU average* (latest year) Cancer mortality per 100 000 population240.3235.7237.3234.8n.a.0.93233.1 (2023)Mortality due to circulatory diseases per 100 000 population 348.3 345.1 361.5 349.7n.a.0.87313.0 (2023)Current expenditure on health, purchasing power standards, per capita4 7905 1985 4325 4145 7961.503834.9 (2023)Public share of health expenditure, % of current health expenditure 85.8 85.9 86.7 85.9 86.31.0280.6 (2023)Spending on prevention, % of current health expenditure 3.67.28.44.8n.a.1.453.7 (2023)Available hospital beds per 100 000 population*** 652 645 640 633n.a.0.93440 (2023)Doctors per 1 000 population*4.54.54.64.7n.a.1.164.3 (2023)*Nurses per 1 000 population* 12.0 12.0 12.1 12.2n.a.1.177.6 (2023)*Mortality at working age (20-64 years), % of total mortality13.513.713.013.012.80.8714.3 (2023)Consumption of antibiotics in the community and hospital sectors,      defined daily doses per 1 000 inhabitantsn.a.n.a.n.a. 13.3 13.8n.a.20.3 (2024) 
 
 
 
       
 
2023,  ahead  of  outpatient  care  (25%,  compared 
with 28.4% in the EU). Public funding remains the 
largest share of current health spending, reaching 
86%  in  2023,  above  the  EU  average  of  80%. 
However,  according  to  the  2025  Eurofound  living 
and  working  in  the  EU  survey,  unmet  needs  for 
mental  healthcare in Germany  was  on  an  upward 
trend  between  2021  and  2024,  remaining  well 
above  the  EU  average.  In  2024,  10%  of  adults 
reported  unmet  mental  healthcare  needs,  an 
increase  compared  with  4% 
in  2021,  which 
highlights the potential longer-term effects of the 
COVID-19  pandemic,  along  with  other  social, 
economic and psychological stresses (485).  

to 

to 

their 

failure 

implementation. 

Germany  continues 
face  structural 
challenges  in  primary  and  integrated  care. 
Following recent reform efforts, the focus has now 
shifted 
  Germany 
continues to report a high number of hospital beds 
(633 per 100 000 people in 2023, well above the 
EU  average).  The  country  reports  among  the 
highest  rate  of  hospital  admissions  in  the  EU  for 
specific  ambulatory  care  sensitive  conditions  that 
can typically be managed effectively in outpatient 
settings. Almost half of these cases were linked to 
(486).  These 
congestive  heart 
persistently higher avoidable admission rates point 
to  structural  challenges in  primary  and  integrated 
care.  A  fundamental  challenge  stems  from  the 
lack  of  coordination  between  outpatient  and 
inpatient  care,  which  often  causes  patients  to  be 
admitted  to  hospitals  despite  their  conditions 
being  treatable  in  the  outpatient  setting.  Recent 
and upcoming reforms, which are also included in 
the MTFSP, aim to address these challenges by (i) 
prioritising  a  primary  care  practitioner  system;  (ii) 
ensuring closer coordination across care providers; 
and (iii) avoiding unnecessary referrals of patients 
with  chronic  conditions  to  emergency  units  or 
hospital wards. 

(47%) 

Germany  is  advancing  reforms  to  improve 
efficiency, reduce inpatient cases and ensure 
cost-effectiveness  and  quality.  The  current 
hospital  reform  focusses  on  modernising  service 
delivery  while  strengthening  outpatient  care  to 
better  meet  future  demands.  As  part  of  the 
reform,  a  new  hospital  reimbursement  system 

(485) Country Health Profile 2025: Germany – see earlier 

Footnote. 

to 

flat 

remove 

aims 
incentives  for  unnecessary 
medical  procedures  by  partially  replacing  DRG-
based  payments  with 
(service-based) 
payments  at  the  level  of  hospitals  according  to 
their  assigned  service  groups.  A  transformation 
fund  of  up  to  EUR  50  billion  will  support  hospital 
restructuring  from  2026  to  2035.  In  parallel,  a 
reform  commission  has  been  tasked  to  propose 
recommendations  on  the  financing  of  statutory 
health  insurance  (487).  A  first  set  of  short-term 
recommendations  has  been  adapted  as  part  of  a 
proposed  law  which  makes  changes  to  both 
revenue-raising  and  expenditure  policies,  with  the 
aim to stabilize contribution rates as of 2027. The 
reform commission will  present recommendations 
for more comprehensive structural reforms by the 
end of 2026. 

Antibiotic  consumption  (in  hospital  and  the 
community)  in  Germany  rebounded  sharply 
Consumption 
after  COVID-19  pandemic. 
reached  13.8  defined  daily  doses  per  1  000 
population  per  day  in  2024  -  just  above  2019 
levels. More efforts would be needed to meet the 
2030  recommended  national  target (488),  which 
could come about following Germany’s revision of 
its national strategy in 2024. The current German 
Antimicrobial Resistance Strategy defines national 
and international goals to be achieved in the fight 
against  antibiotic  resistance,  presented  in  six 
areas.  The  strategy  is  supplemented  by  an  action 
plan describing the initial priority measures in each 
field to achieve set goals. 

Germany's  healthcare  workforce  is  ageing, 
with  high  numbers  of  nursing  graduates  but 
comparatively 
low  numbers  of  medical 
graduates. The country has a large workforce of 
practising  nurses  and  physicians,  and  with  a 
is 
growing  proportion  aged  55  and  over 
increasingly reliant on foreign doctors. The country 
has  40%  of  all  foreign  doctors  coming  from  EU 
countries  and  60%  from  non-EU  countries  and  in 
parallel  a  growing  outflow  of  doctors  (489).  Some 
geographical  disparities  remain  in  the  availability 
of  general  practitioners.  The  number  of  medical 
graduates  in  Germany  has  remained  relatively 

(487) FinanzKommission Gesundheit, Federal Ministry of Health. 

(488) National target set by the Council Recommendation on 

stepping up EU actions to combat antimicrobial resistance in 
a One Health approach, 2023/C 220/01. 

(486) Country Health Profile 2025: Germany – see earlier 

(489) OECD/European Commission (2024), Health at a Glance: 

Footnote. 

Europe 2024: State of Health in the EU Cycle. 

118 

 
 
 
stable, but increasing healthcare demand outstrips 
trains  an  above-
supply.  Although  Germany 
average  number  of  nursing  graduates  compared 
with  the  average  across  the  EU,  the  supply 
remains  below  expected  future  demand.  This 
means  that  further  measures  will  be  needed  to 
strengthen  nursing  training  and  secure  a  skilled 
nursing workforce. 

recovery  and 

resilience  plan 

The  opportunities  offered  by  e-health, 
especially  for  hard-to-reach  areas,  are  not 
yet fully embraced in Germany. Investments to 
boost  the  digital  transformation  of  Germany’s 
health  sector  are  being  implemented  under  its 
national 
(RRP). 
Measures  focus  on  (i)  strengthening  public  health 
services,  including  by  rolling  out  a  nationwide  IT 
system  for  infection  prevention  and  control;  and 
(ii)  future-proofing  hospitals  by  improving  digital 
infrastructure,  emergency  capacities,  telemedicine 
capacities,  robotics  integration  and  cybersecurity 
measures. Further funding for digital health comes 
from  the  2021-2027  cohesion  policy  funds.    The 
share  of  people  accessing  their  personal  health 
records  online  and  of  those  using  online  health 
services  (excluding  phone)  instead  of  in-person 
consultations  further  increased  in  Germany  in 
2024  compared  with  2022.  However,  they  stand 
far  below  the  EU  average,  in  particular  when  it 
comes to the use of electronic health records. The 
low level recorded reflects the historically slow roll 
lack  of 
out  of  electronic  patient 
awareness 
sluggish 
participation by doctors. The level of digital literacy 
in  the  country  is  slightly  below  the  EU  average 
(59.5%  of  individuals  with  at  least  basic  digital 
skills  in  2023  vs  an  EU  average  of  60.4%  (see 
Annex  13).  Germany’s  digitalisation  strategy  for 
healthcare,  published  in  2023  shows  the  need  to 
develop  electronic  patient  records  further  so  that 
patients  can  access  them  via  a  secure  health 
platform. The nationwide roll out of the ePA began 
in April 2025, making it available to those covered 
by the Statutory Health Insurance (SHI). 

records, 
and 

patients 

among 

sector 

Germany’s 
has 
pharmaceutical 
experienced  strong  growth  since  the  COVID-
19  pandemic,  with  a  marked  acceleration 
from  2021  onward.  Employment 
the 
pharmaceutical  sector  has  sharply  risen  (+30% 
increase from 2019 to 2022), positioning Germany 
well  above  the  EU  average  and  asserting  its 
leadership  in  this  field.  However,  despite  the 

in 

number of patents (490) granted in 2024 remained 
well  above  the  EU  average,  the  figure  declined in 
2025.  Meanwhile,  Germany's  medical  imaging 
capacity  remains  stable,  indicative  of  a  robust 
diagnostic  infrastructure.  In  parallel,  Germany's 
strength in research is reinforced by its volume of 
clinical 
(9.12  per  million  population). 
However,  in  the  last  few  years  such  trials  have 
observed  a  slow  downward  trend,  mirroring  the 
trend observed across the EU (491). 

trials 

(490) European Patent Office: Statistics & Trends Centre | epo.org. 

(491) US National Library of Medicine, https://clinicaltrials.gov. 

119 

 
 
ANNEX 16: HOUSING 

High  costs  and  standards  with  cumbersome 
procedures, highlighted in the 2025  country-
specific  recommendation,  aggravate  supply 
shortages,  especially 
in  growth  regions, 
driving  up  prices  and  rents.  To  ensure 
insurability,  construction  projects  have  to  adhere 
to  common  market  practice,  going  well  beyond 
legal  minimum  standards.  This  increases  costs 
significantly.  Transactional  taxes  and  additional 
costs,  like  notary  fees,  are  also  high  compared 
with the rest of the EU. Cumbersome and lengthy 
procedures  for  land-use  planning  and  permitting, 
as  well  as  limited  digitalisation,  result  in  costly 
delays. Against this background, the 2025 country-
specific  recommendations  called  for  improving 
‘the  conditions  for  housing 
investments  by 
simplifying  regulation  and  procedures,  reviewing 
rental  law and mobilising additional  building land, 
with  the  concurrent  aim  of  tackling  the  housing 
affordability challenges.’ While first steps to tackle 
these  problems  are  underway, 
some  of 
implementation and uptake are not yet known. 

High  house  prices  and  rents  for  new  rental 
contracts limit  personal  and  labour mobility, 
partly  due  to  policy  measures.  High  prices  of 
construction materials, shortages of skilled labour 
and  scarcity  of  land  have  driven  up  construction 
costs. Since 2005, house prices and rents for new 
contracts  have  increased  significantly  more  than 
inflation and income. However, average rents have 
increased  less  than  inflation  and  income.  As  a 
result, personal and labour mobility are hampered, 
weighing  on  economic  growth.  The  underlying 
include  policy  measures  that  make 
reasons 
less  attractive,  for 
in  rental  units 
investing 
example  by  limiting  rents  and  rent  increases, 
resulting  in  the  real  rents  of  existing  contracts 
falling.  Given  the  high  share  of  tenants  and  the 
need for private capital  to cover the housing gap, 
the  sector’s  attractiveness  for  private  investment 
is key.  

Funding is being increased to start reversing 
the  decade-long  decline  in  social  housing 
stock  while  misoccupancy  could  be  reduced. 
The  stock  of  social  housing  has  been  declining 
significantly  over  the  last  years  and  there  is 
considerable misoccupancy (492). Federal funding is 

(492) Misoccupancy refers to people living in social housing whose 
circumstances have improved to the extent that they are no 
longer eligible for that housing. See German Council of 
Economic Experts, 2024, Annual Report 2024/2025, 
sachverstaendigenrat.de. 

now  being  stepped  up,  but  social  policies  remain 
mainly based on housing allowances despite their 
weaknesses. 

Housing market developments 

High  prices  and  rents  reflect  low  housing 
supply,  exacerbating  housing  shortages. 
Housing construction has decreased by more than 
20% in real terms since 2020 (see Graph A16.1.). 
This  has  exacerbated  housing  shortages  and 
significantly  dampened  GDP  growth.  The  decline 
reflects  high  construction  costs  and  increased 
interest  rates.  In  2024,  Germany  had  the  highest 
price  level  for  housing  construction  in  the  EU,  at 
147%  of  the  EU  average  (see  Graph  A16.2).  In 
2025,  238 400  housing  permits  were  issued, 
10.8%  more  than  a  year  earlier,  but  still  37% 
below  the  2021  level,  signalling  low  construction 
activity.  The  share  of  unoccupied  dwellings  was 
7.7%  in  2021,  the  second  lowest  in  the  EU  after 
the Netherlands (4.1%). 

Graph A16.1: House supply indicators in DE since 
2005 

Source: Eurostat 

The German construction sector continues to 
face  severe  labour  shortages (493).  Both  the 
job vacancy rate in the construction sector and the 
percentage  of  construction  managers  indicating 
that  labour  shortages  are  a  factor  limiting  their 
business  declined  (to  3.9%  in  Q3  2025  and  to 

(493) BauInfoConsult, 2025, Jahresanalyse Deutschland 

2025/2026 – ‘Fachkräftemangel und Baukosten prägen 
2025 und 2026‘. 

120 

0123456785070901101301501701902102300507091113151719212325% of GDPIndex (2005 = 100)Residential building permits in m2, indexResidential buildings producer prices, indexInvestment in dwellings (right-hand side axis) 
 
 
     
 
 
 
27.4%  in  January  2026,  respectively).  However, 
three out of four manufacturers and a large share 
of  companies  in  the  building  sector  consider  the 
acute  lack  of  skilled  workers  to  be  the  central 
issue  slowing  down  projects,  driving  up  costs  and 
limiting the urgently needed expansion of housing 
and  infrastructure (494).  At  the  same  time,  the 
sector struggles with precarious working conditions 
that  make  recruitment  a  challenge.  Physically 
demanding  labour,  combined  with  comparatively 
unattractive  wages  and 
frequent  use  of 
subcontracting chains, creates risks of exploitation, 
wage  dumping  or  violations  of  minimum 
standards, affecting migrant workers in particular. 

Graph A16.2: Price level for residential 
construction, % compared to the EU average 

Source: Eurostat [prc_ppp_ind_1] 

Estimates  of  the  housing  shortage  differ. 
While  most  experts  agree  that  the  252 000 
housing  units  completed  in  2024  are  insufficient, 
estimates  of 
the  housing  shortage  differ 
considerably.  On  the  high  end,  the  Pestel  Institut 
identified  a  shortage  of  1.4 million  affordable 
housing  units  at  the  end  of  2024 (495).  The 
Commission  estimates  the  additional  housing 
investment need for 2025-2035 at about 80 000 
dwellings annually, with two thirds in metropolitan 
regions (496).  The  need  for  new  housing  is  very 
uneven  across  Germany,  concentrated  in  areas 

such  as  urban 
population (497).  

centres  with  a  growing 

as 

such 

arrangements 

Rents for existing contracts have declined in 
real terms, but people signing new contracts 
face  increasingly  higher  prices  and  lower 
rental  affordability.  Rental  price  developments 
are  particularly  important  for  Germany,  as  the 
country has the highest share of tenants in the EU, 
with  52.8%  of  people  living  in  a  household  that 
rents  its  home,  against  the  EU  average  of  31.6% 
in  2024  (see  Table  ).  As  a  result  of  rental  price 
the 
control 
Kappungsgrenze, rental prices of existing contracts 
increased by only 18.6% between 2013 and 2024, 
i.e.  much 
(30.1%)  and 
disposable income (44.8%) (498). At the same time, 
prices for new rental contracts increased by 50.8% 
in Germany as a whole and by 76.3% in the seven 
biggest cities, reflecting strong demand in the face 
of restricted supply. High rents of new contracts in 
key  regions  weigh  on  rental  affordability  for  a 
large  share  of  the  population,  in  particular  those 
facing  vulnerable  situations 
In 
addition,  the  resulting  gap  between  existing  and 
new  rental  prices  leads  to  a  ‘lock-in  effect’, 
creating  a  disincentive  for  people  with  existing 
contracts  to  move  out,  reducing  housing  and 
ultimately labour mobility (499). 

(see  below). 

lower  than 

inflation 

the 

thereby 

After  a  temporary  fall,  house  prices  have 
increase  again,  weighing  on 
started  to 
purchase  affordability.  Between  2012  and 
2022, nominal house prices increased by 80% (see 
Graph A16.3), significantly outpacing inflation and 
reducing  purchase 
income  growth, 
affordability,  and  leading  to  overvaluation  (based 
Commission 
on 
methodology).  This  overvaluation  declined 
in 
2022-2024,  as  prices  fell  by  10%  amid  a  sharp 
increase in mortgage rates. However, higher rates 
also  reduced  households’  borrowing  capacity,  and 
house  prices  remain  relatively  high,  especially  in 
urban  centres.  Price  growth  gradually  resumed 
and, in 2025, house prices were 3.2% above their 
level  a  year  earlier,  supported  by  gradually 

European 

standard 

(494) DIHK-Fachkräftereport 2025/2026.  

(497) BBSR, 2025, BBSR-Wohnungsbedarfsprognose. BBSR-

Analysen KOMPAKT 16/2025. bbsr.bund.de. 

(495) Pestel Institut, 2026, Sozialer Wohn-Monitor 2026. 

(498) Adjusted gross disposable income of households per capita 

Wohnungsmarktsituation, Wohnungsbedarfe, sozialer 
Wohnungsbau. mieterbund.de. 

(496) Balouktsi et al., 2026, Housing investment needs in the EU. 

JRC Technical Report 144419. 

in percentage points. 

(499) Falck, O., Krause, S., & Zamorski, P., 2025, Mieten–

Wachstumshemmnis und sozialer Sprengstoff in deutschen 
Großstädten?. ifo Schnelldienst, 78(10), 04-16. Ifo.de. 

121 

020406080100120140160DELUSEDKNLATFRFIIEBEESITMTLVBGCZELEESKCYPTHULTPLSIROHR 
  
 
 
declining  mortgage  interest  rates  and  slowly-
amid 
household 
recovering 
structurally  staggered  housing  supply,  which  may 
weight on purchase affordability going forward. 

incomes 

real 

Graph A16.3: House prices, rents and price-to-
income evolution in DE and EU27 since 2005 

yes

Source: Eurostat 

Structural policies 

limited 

Housing  investment  remains  constrained  by 
regulatory  complexity  and 
land 
availability.  Reflecting  these  challenges,  the 
2025 country-specific recommendations called on 
Germany  to  simplify  regulation  and  procedures, 
review rental law and mobilise additional  building 
land,  with  the  concurrent  aim  of  tackling  housing 
affordability  challenges  (for  regional  aspects  on 
housing  affordability  see  Annex  18).  In  response, 
several  measures  were  adopted  in  2025,  most 
notably the Act to Accelerate Housing Construction 
and to Secure Housing, which entered into force on 
30 October 2025.  The  ’construction  turbo’  (Bau-
Turbo) introduces a package of measures aimed at 
expanding  housing  supply  and  easing  major 
bottlenecks,  but  key  aspects  for  making  it  an 
effective tool remain unclear (see below). 

The  limited  availability  of  building  land  and 
lengthy  planning  procedures  are  major 
obstacles  to  expanding  housing  supply. 
Land-use  planning  processes  in  Germany  are 
complex  and  time-consuming,  taking  on  average 
four to nine years, which stands in contrast to the 

turbo 

introduces  a 

urgent  housing  needs  in  many  regions (500).  To 
land  available,  the 
make  additional  building 
construction 
temporary 
exemption until  2030 that allows deviations from 
planning  law  for  housing  projects.  With  municipal 
approval,  projects  can  be  authorised  within  three 
months  without  prior  changes  to  land-use  plans, 
covering  new 
construction,  extensions  and 
repurposing. This has the potential to ease supply 
its 
constraints 
effectiveness  will  critically  depend  on  uptake  at 
municipal 
remains 
mandatory (501).  In  addition  to  the  temporary 
exemption, the construction turbo also amends the 
facilitate  housing 
Federal  Building  Code 
construction, 
residential 
including 
development  beyond  existing  land-use  plans  and 
in areas without such plans or outside designated 
construction zones.  

in  urban  areas.  However, 

to 
allowing 

level,  as 

consent 

local 

High  construction  costs  are  driven  by 
complex  building  regulations  and  demanding 
land  scarcity, 
technical  standards.  Beyond 
Germany’s 
framework 
legal  and  contractual 
typically requires builders to meet costly technical 
and  comfort  standards,  often  exceeding  what  is 
legally  necessary.  These  standards  are  widely 
applied  to  avoid 
legal  disputes  and  ensure 
insurability,  but  they  raise  costs  and  slow  down 
construction.  To  address  this,  the  housing  type  E; 
approach  proposes  a  new  legal  basis  allowing 
simpler, 
contracting  parties 
needs-based  standards  and  to  deviate  from 
non-essential  rules,  based  on  the  experience  of 
Hamburg,  which  suggests  that  the  building  cost 
per  square  metre  can  be  cut  by  a  third (502).  A 
concept  paper  was  published  in  November  2025, 
but  the  timeline  for 
implementation  remains 
unclear (503). The uptake in practice will depend on 
the concrete formulations e.g. if the housing type E 
is  defined  as  a  temporary  deviation  from  normal 
practice  or  as  new  legal  standard. Lastly, building 
law  is  fragmented  across  federal,  state  and 
in 
municipal 
requirements and procedures that further increase 

levels,  with  regional  differences 

to  agree  on 

(500) BBSR, 2025, Verfahrensbeschleunigung der Bauleitplanung, 

bbsr.bund.de. 

(501) ZIA, 2025, Stellungnahme Bau-Turbo, bundestag.de; BFW, 

2025, Stellungnahme Bau-Turbo, bundestag.de. 

(502) bezahlbarbauen.hamburg.de. 

(503) BMJV/BMWSB, 2025: Gebäudetyp E, Gemeinsame 

Eckpunkte, bmjv.de. 

122 

751001251501752000507091113151719212325Index (2005 = 100)Nominal prices DENominal prices EU27Rental prices DERental prices EU27Price-to-income ratio DEPrice-to-income ratio EU27 
     
 
costs and hinder innovation, including modular and 
serial construction methods.  

in 

for 

increase 

rents  paid 

Rent control does not address the underlying 
causes  of  housing  affordability  challenges. 
The  federal  government  has  prolonged  the  rent 
price  brake  (Mietpreisbremse)  until  the  end  of 
2029.  It  limits  rents  for  new  leases  in  tight 
housing markets to no more than 10% above the 
local  comparable  rent,  with  exemptions  for  new 
buildings  and  extensively  modernised  dwellings. 
The  rent  increase  within  existing  contracts  is 
limited  to  15%  in  three  years  in  tight  housing 
markets  (Kappungsgrenze).  Evaluations  show  that 
the rent price brake has been effective in curbing 
the 
regulated 
dwellings (504).  At  the  same  time,  rent  control 
comes  with  adverse  effects,  such  as  reduced 
mobility of tenants, and may further increase rents 
in  the  unregulated  new-build  segment.  The  rental 
law has therefore not been made more investment 
friendly,  as  recommended  by  the  country-specific 
recommendation.  Parallel 
controlled 
segment effectively covering mainly the renting of 
unfurnished housing, there has been an increasing 
share  of  furnished  apartments  offered,  with 
considerably  higher  rent  increases (505).  In  April 
2026  the  German  government  made  the  rental 
including  by 
regulation  even  more  restrictive 
regulating  further  renting  of  furnished  units  and 
imposing  that  landlords  need  to  cover  part  of 
heating  costs  for  certain  installations,  further 
weighing on incentives to offer and invest in rental 
is 
units.  The  effect  on  housing  affordability 
therefore  mixed (506). 
If 
too 
is 
investment 
it  can  weaken  private 
restrictive, 
incentives  in  the  housing  sector  and  hinder  the 
efficient use of available housing (507).  

rent  control 

the 

to 

possibilities 

accelerate 
Further 
construction  and 
reduce  housing  costs 
remain.  The  coalition  agreement  mentions  that 

to 

(504) DIW, 2018, Mietpreisbremse ist besser als ihr Ruf, aber nicht 

die Lösung des Wohnungsmarktproblems, diw.de. 

(505) BBSR, 2026, Rental housing segments – significance and 
impact on the rental housing markets. bbsr.bund.de. 

(506) Baye &Dinger, 2023, Investment incentives of rent controls 
and gentrification – Evidence from German micro data, uni-
osnabrueck.de. 

(507) German Council of Economic Experts, 2024, Wohnen in 

Deutschland: Knappheiten beheben und Zugang erleichtern, 
svr-wirtschaft.de; DIW, 2022, Rent Control Effects through 
the Lens of Empirical Research, diw.de. 

Important 

the  construction  turbo  will  be  followed  by  a 
fundamental  reform  of  the  Federal  Building  Code 
to  accelerate  construction. 
levers 
include  the  digitalisation  of  land-use  plans  and 
further simplification and digitalisation of building 
land 
permitting.  To  make  additional  building 
available, improving links to suburban areas could 
expand  enable  the  use  of  available  land  and 
housing  outside  cities (508).  Lastly,  there  is  room 
for  improving  taxation  and  regulation  on  housing 
transactions.  Incentives  to  use  available  building 
land  could  be improved, by  shifting  taxation  from 
taxation.  Housing 
recurrent 
transactions 
transaction costs, including notary and registration 
fees,  acquisition  tax  and  potentially  agent  fees, 
are high in international comparison(509).  

to 

Vulnerable groups 

Housing  cost  overburden,  while  declining 
overall,  has  increased  for  parts  of  the 
population.  In  2025,  11.2%  of  the  population 
lived  in  households  spending  more  than  40%  of 
their  disposable  income  on  housing  (see  Table 
)(510).  Older  people  are  particularly  affected 
(13.8%,  compared  with  8.5%  in  the  EU),  while 
close  to  one  in  three  individuals  in  the  lowest 
income  quintile  faces  housing  cost  overburden 
(31.5%  compared  to  26%  in  the  EU).  Middle-
income  households  are  not  shielded  either.  7% 
spend more than 40% of their income on housing, 
more than double the EU average of 3.3%. Single-
person  households  (22.6%,  EU:20.1%)  and  people 
with  disabilities  (14.3%,  EU:  9.9%)  are  also 
disproportionately  exposed.  Rising  housing  costs 
are especially challenging for students living away 
from  home,  who  spent  on  average  53%  of  their 

(508) Projektteam STAWAL, 2024, Stadtstruktur, 

Wohnstandortwahl und Alltagsmobilität. Neue Befunde für 
die Stadt- und Verkehrsentwicklung. Berlin und Dortmund. 
zukunft-nachhaltige-mobilitaet.de ; Henger, R. et alM (2019), 
Mobilität und Wohnen – neue Perspektiven für die 
Stadtentwicklung. iwkoeln.de. 

(509) German Council of Economic Experts, 2024, Annual Report 
2024/2025, sachverstaendigenrat.de; Cousin, G., Frayne, C., 
Dias, V. M., & Vašíček, B., 2025, Housing in the European 
Union: Market Developments, Underlying Drivers, and 
Policies. European Economy, Discussion Paper 228. 
europa.eu. 

(510)The overburden rate  

should be read together with the 

tenure structure (homeowner, tenants), that may differ 
across country and regions.   

123 

 
 
 
disposable  income  on  housing  in  2024 (511),  more 
than twice the share of the population as a whole 
(24.5%).  

Housing-related  expenses  represent  a  major 
driver  of  poverty  and  social  exclusion.  In 
2025, 34.9% of individuals at risk of poverty also 
experienced  housing  cost  overburden.  In  addition, 
4.5%  of  the  population  reported  arrears  on  utility 
bills,  an 
increase  of  1.2  percentage  points 
compared with 2020 (512). 

While  the  stock  of  social  housing  has 
significantly declined, public funding is being 
stepped  up.  Social  housing  fulfils  an  important 
supply  function  for  households  whose  access  to 
the  regular  housing  market  is  difficult,  such  as 
single  parents,  large  families  and  immigrants.  A 
strategic  expansion  of  publicly  funded  housing 
could also exert downward pressure on rents in the 
private sector (513). Over the past two decades, the 
number of social  rental  housing units in Germany 
has fallen from approximately 2.5 million in 2000 
to around 1 million in 2024. This decline in social 
housing units is partly due to expiring time-limited 
social  binding 
(Sozialbindung),  which  obliges 
landlords  to  rent  at  below-market  rates  and  only 
to eligible households, in return for subsidies. The 
duration of this binding varies by federal state and 
funding programme but typically lasts around 15–
25  years.  In  2024  around  80%  of  the  newly 
subsidized rental units come with a social binding 
of  at  least  30  years.  Projections  of  the  German 
Council of Economic Experts show that an average 
of  40 000 units  will  lose  their  social  housing 
status  every  year  up  until  2035 (514).  Between 
2020  and  2024,  around  41 000  to  62 000  units 
per year were newly designated as social housing. 
However,  as  a  similar  number  lost  that  status 
when  restrictions  expired,  the  total  number  only 
increased  in  2023  and  2024 (515).  In  addition, 
estimates  from  individual  federal  states  suggest 

(511) Destatis, 2025, Studierendenhaushalte geben im Schnitt 53 

% des Einkommens für Wohnkosten aus, destatis.de  

(512) Der Paritätische, 2025, Bericht zu Wohnarmut, der-

paritaetische.de. 

(513) OECD/European Union, 2025, Social Economy in Europe: 
Contributing to Competitiveness and Prosperity, Local 
Economic and Employment Development (LEED), oecd.org. 

that  between  10%  and  30%  of  subsidised 
dwellings  are  occupied  by  households that  are  no 
longer entitled to social housing. As announced by 
the  Minister  for  Housing,  a  misoccupancy  levy 
(Fehlbelegungsabgabe)  could  be  charged  for 
tenants  whose  income  exceeds  the  eligibility 
threshold,  as  is  done  already  in  some  of  the 
federal  states (516),  to  help  ensure  that  social 
housing units are distributed to those in need, for 
as  long  as  social  housing  units  remain  scarce. 
administration 
Avoiding 
and 
high 
segregation  are 
important  considerations  for 
implementation.  The  federal  government  has 
increased  funding  from  around  EUR 1 billion  in 
2020  to  EUR 4 billion  in  2026.  At  the  same  time, 
the  low  level  of  new  construction  is  not  due  to 
funding constraints alone; several bottlenecks limit 
delivery. Construction costs have risen sharply due 
to the higher prices of materials, energy standards 
and labour shortages.  

costs 

Housing  allowances  are  an 
important 
element  of  social  policies,  but  only  partly 
substitute  the  provision  of  social  housing.  In 
Germany, more than 11 million tenant households 
are  entitled  to  a  housing  eligibility  certificate 
(Wohnberechtigungsschein)  –  and  thus  to  social 
housing (517).  While  public  expenditure  on  housing 
support has risen, much of this increase has taken 
the  form  of  subject-based  subsidies,  such  as 
housing  allowances 
(Wohngeld),  which  were 
received  by  1.2 million  households  at  the  end  of 
2024.  These  payments  provide  significant  short-
term relief but may also contribute to persistently 
high  or  even  rising  rents  when  supply  constraints 
remain unaddressed.  

Homelessness 
is  rising  and  remains  a 
significant challenge.  Despite the government’s 
to  end  homelessness  by  2030 
objective 
(formulated  in  the  national  action  plan  against 
seeks 
homelessness,  which 
combat 
to 
homelessness 
expanded  affordable 
through 
housing,  stronger  prevention  measures,  improved 
support  services  and  closer  cooperation  between 
federal,  state  and  local  governments  as  well  as 
civil  society  actors (518)),  around  47 000  people 

(516) This is used in Hessen for tenants whose incomes exceed the 
threshold for social housing eligibility by more than 20%.  

(514) German Council of Economic Experts, 2024, Annual Report 

(517) dgfm, 2023, Forderungen vom Bündnis Soziales Wohnen  

2024/2025, sachverstaendigenrat.de. 

www,dgfm.de.  

(515) Bundestag, 2025, Kleine Anfrage, Drucksache 21/3231. 

(518) bmwsb, 2024, Nationaler Aktionsplan zur Überwindung der 

bundestag.de. 

Wohnungslosigkeit, www.bmwsb.de.  

124 

 
 
 
Table A16.1:Housing affordability selected indicators 

Source:  Eurostat and European Commission calculations. The overburden rate should be read together with the tenure structure 
(homeowner, tenants), that may differ across country and regions.  

were  sleeping  rough  in  2024,  with  a  further 
439 500  in  emergency  accommodation  and  over 
60 000  staying  involuntarily  with  relatives  or 
friends (519). Broader estimates suggest that more 
than  one  million  people  may  be  affected  when 
insecure housing situations are included, reflecting 
the  combined  effects  of  poverty,  high  housing 
costs  and  shortages  of  affordable  and  social 
housing (520). 

(519) bmwsb, 2024, Wohnungslosenbericht der Bundesregierung 

bmwsb.bund.de/. 

(520) BAG Wohnungslosenhilfe, 2024, Mehr als eine Million 

wohnungslose Menschen in Deutschland, www.bagw.de. 

125 

 
 
 
 
 
HORIZONTAL 
ANNEX 17: SUSTAINABLE DEVELOPMENT GOALS 

social 

fairness 

This  annex  assesses  Germany’s  progress  on 
the  sustainable  development  goals  (SDGs) 
along  the  dimensions  of  competitiveness, 
and 
sustainability, 
macroeconomic stability. The 17 SDGs and their 
related  indicators  provide  a  policy  framework 
under  the  UN’s  2030  Agenda  for  Sustainable 
Development.  The  aim  is  to  end  all  forms  of 
inequalities  and  tackle  climate 
poverty,  fight 
change  and 
the  environmental  crisis,  while 
ensuring that no one is left behind. The EU and its 
Member  States  are  committed  to  this  historic 
global  framework  agreement  and  to  playing  an 
active  role  in  maximising  progress  on  the  SDGs. 
The graph below is based on the EU SDG indicator 
set developed to monitor progress on the SDGs in 
the EU. 

is  further 
Germany  performs  well  and 
improving  on  SDGs  on  competitiveness 
(SDGs 8  and  9).  However,  Germany 
is 
performing  below  the  EU  average  on  SDG 4 

Graph A17.1: Progress towards the SDGs in Germany 

(Quality  education),  hampering  growth  and 
competitiveness.  Germany  performs  above  the 
EU average on SDG 8 (Decent work and economic 
growth)  and  on  SDG 9  (Industry,  innovation  and 
infrastructure).  With  3.13%  of  GDP  allocated  to 
R&D  in  2024,  Germany  has  some  of  the  highest 
R&D  spending  in  the  EU.  The  proportion  of  R&D 
personnel  in  the  active  population  rose  from 
1.78%  in  2019  to  1.98%  in  2024  (EU:  1.59%  in 
2024).  Regarding  infrastructure,  however,  only 
77.4%  of  households  had  high-speed  internet 
connection in 2024 (EU: 82.5%). The share of low-
achieving  15-year-olds  in  mathematics  increased 
strongly from 21.1% in 2018 to 29.5% in 2022. A 
rising  number  of  young  people  leave  education 
early  (10.3%  in  2019,  vs  13.1%  in  2025),  well 
above  the  EU  average  (9.1%  in  2025).  Adult 
participation  in  learning  in  the  past  four  weeks 
(9.3%)  was  below  the  EU  average  (EU:  13.7%  in 
2025).  The  German  recovery  and  resilience  plan 
(RRP)  targets  bottlenecks  for  digitalising  the 
administration  and  the  economy,  for  instance  by 

For a detailed progress assessment towards the various SDGs, see the annual Eurostat report ‘Sustainable development in the 
European Union’; for extensive data on the short-term SDG progress of EU countries, see Key findings – Sustainable development 
indicators; for an interactive visualization of SDG progress of EU countries, see SDG country overview. A high status does not 
mean that a country is close to reaching a specific SDG, but signals that it is doing better than the EU on average. The progress 
score is an absolute measure based on the indicator trends over the past five or six years. The calculation does not take into 
account any target values, as most EU policy targets are only valid for the aggregate EU level. Depending on data availability for 
each goal, not all 17 SDGs are shown for each country. 
Source: Eurostat, latest update of 29 April 2026. Data refer mainly to the period 2019-2024 or 2019-2025. Data on SDGs may 
vary across the report and its annexes due to different cut-off dates. 

126 

 
 
 
 
 
 
supporting  digitalising  vehicle  supplier  companies. 
It  also  helps  address  upskilling  and  reskilling 
needs, including for digital skills. 

has 

and 

production 

responsible 

consumption 

While  Germany  performs  well  on  several 
SDGs related to sustainability (SDGs 6, 9, 11, 
14,  15),  though  improving,  it  still  needs  to 
catch up with the EU average on zero hunger 
and 
(SDG 2), 
production (SDG 12) as well as on affordable 
and clean energy (SDG 7) and climate action 
(SDG 13). 
It  performs  well  on  sustainable 
reduced 
agricultural 
agriculture’s environmental impact. It has reduced 
nitrate levels in groundwater (SDG 6) and the use 
and  risk  of  chemical  pesticides  (SDG 2),  although 
both  remain  above  the  EU  average,  and  has 
achieved  reductions  in  premature  deaths  due  to 
fine particulate matter (SDG 11). It has also made 
some  progress  on  energy  consumption  indicators, 
including  increasing  the  percentage  of  renewable 
energy in  gross  final  energy  consumption (SDG 7) 
from  17.3% 
in  2024. 
Nevertheless,  this  is  still  below  the  EU  average 
(Climate  action),  net 
(25.2%).  On  SDG 13 
greenhouse  gas  emissions  decreased 
from 
10.1 tonnes  per  capita  in  2019  to  8.5 tonnes  in 
2024,  although  they  still  remain  above  the  EU 
average  (6.5 tonnes).  Average  CO2  emissions  per 
km  from  new  passenger  cars  fell  considerably 
between 2019 and 2024 (SDG 12; 159 g in 2019 
vs 117.1 g in 2024) but are above the EU average 
(107.9 g). Various measures in Germany’s RRP that 
support the use of renewable hydrogen in industry, 
and 
reduce 
greenhouse gas emissions and increase the share 
of renewable energy. 

transport  sector  will  help 

to  22.5% 

in  2019 

the 

and 

energy 

Germany  is  performing  well  on  some  SDG 
indicators related to  social fairness (SDGs 1, 
3, 8). However, it still needs to catch up with 
the EU average on quality education (SDG 4), 
gender  equality  (SDG 5),  affordable  and 
clean 
reducing 
(SDG 7) 
inequalities 
(SDG 10).  Germany  generally 
performs  better  than  the  EU  average  in  areas 
linked  to  poverty,  health  and  decent  jobs  and 
growth. On health (SDG 3), road traffic deaths and 
fatal  accidents  at  work  have  declined  and  are 
proportionally  below  their  level  in  the  rest  of  the 
EU.  At  the  same  time,  20.8%  of  the  adult 
population  was  obese  in  2025,  up  from  19%  in 
2019  and  above  the  EU  average  of  16.3%  (in 
2025). While the overall share of people at risk of 

poverty or social exclusion (SDG 1) is aligned with 
the  EU  average,  there  is  a  significant  urban-rural 
gap  (SDG 10).  On  gender  equality  (SDG 5),  the 
unadjusted  gender  pay  gap  is  particularly  high  in 
Germany (15.6%, vs 11.1% in the EU in 2024) and 
the gender gap for being outside the labour force 
due to caring responsibilities and wanting to work 
is far above the EU average. There is also room for 
improvement  on  integrating  non-EU  citizens  into 
education  and  training  and  the  labour  market 
(SDG 10).  Germany  performs  worse  than  the  EU 
average  on  EU/non-EU  citizenship  gaps  for  early 
school  leaving  (19.4 pps  vs  16.8 pps  in  the  EU  in 
2025),  as  well  as  on  the  percentage  of  young 
people  not  in  education,  employment  or  training 
(13.3 pps  vs  10.2 pps  in  the  EU  in  2025)  and  on 
the employment rate (20.6 pps, vs 11.8 pps in the 
EU  in  2025).  Tertiary  educational  attainment 
(SDG 4),  although  improving,  remained  below  the 
EU  average  in  2025  (40.9%;  EU:  44.8%).  The 
German  RRP  promotes  apprenticeships  and  helps 
improve educational outcomes for students with a 
learning  backlog,  often 
from  disadvantaged 
backgrounds.  

Germany 
is  performing  well  on  SDG 
indicators related to macroeconomic stability 
(SDGs 8, 16, 17) and has further improved its 
performance. It performs well on SDG 16 (Peace, 
justice  and  strong  institutions),  showing  a  stable 
and  secure  environment  for  pursuing  economic 
(Decent  work  and 
activities,  and  on  SDG 8 
economic  growth).  The  country  further  increased 
its  employment  rate  from  79.7%  in  2019  to 
81.1%  in  2025  (vs  EU  76.1%).  The percentage  of 
young  people  not  in  education,  employment  or 
training  increased  to  9.5%  in  2025,  but  remains 
below  the  EU  average  (11%),  and  long-term 
unemployment is low (1.1% vs EU 1.9% in 2025). 
In  contrast,  at  20.3%  of  GDP  in  2025,  Germany’s 
investment share remained below the EU average 
of  21.7%  of  GDP.  The  German  RRP  includes 
reforms to speed up public investment and tackle 
private 
investment 
investment  and  reduce  the  savings-investment 
imbalance. 

bottlenecks 

unlock 

to 

As the SDGs form an overarching framework, any 
links  to  relevant  SDGs  are  either  explained  or 
depicted with icons in the other annexes. 

127 

 
ANNEX 18: COMPETITIVE REGIONS 

Regional development trends 

Map A18.1:  GDP per head compared with the EU 
average. 

Sluggish  economic  growth  in  northern  and 
western  regions  has  resulted  in  a  narrowing 
of  internal  disparities  in  Germany.  Germany’s 
GDP per head (in purchasing power standard, PPS) 
stayed  above  the  EU  average  between  2004  and 
2024,  with  the  16  regions  (NUTS  1)  following 
rather  distinct  trajectories.  Over  the  last  two 
decades,  the  most  advanced  and  industrialised 
economies  of  the  western  and  northern  parts  of 
the  country  have  experienced  GDP  per  head 
growth  lower  than  the  less  developed  regions  of 
the central and eastern part of Germany. Hamburg 
and  Bremen  have  recorded  lower  GDP  per  head 
growth over the last two decades (0.6% and 0.2% 
annually respectively), as has Nordrhein-Westfalen 
(0.7%),  the  most  populated  region  and  home  to 
the industrial Ruhr region. This decline mostly took 
place in the last decade. By contrast, most regions 
in the eastern part were able to slightly  converge 
towards 
this 
convergence seems to have stalled in recent years 
amid  general  slow  growth  of 
the  German 
economy.  Between  2014  and  2024,  almost  two-
thirds  of  German  NUTS  2  regions  (24  out  of  38) 
had  an  average  GDP  per  head  growth  ranked 
among  the  bottom  20%  of  EU  regions.  Despite 
slightly  better  economic  performance,  most 
eastern regions, apart from Berlin, continue to lag 
behind,  with  GDP  per  head  ranging  from  82%  to 
97% of the EU average.  

average.  However, 

the 

EU 

Sachsen-Anhalt, 

Even  though  still  significant,  disparities  in 
productivity  between  eastern  and  western 
regions  have  narrowed  over  the  last  decade 
(2014-2024).  Productivity  growth  was 
the 
highest  in  eastern  regions,  with  Mecklenburg-
Vorpommern  standing  out  at  1.3%,  followed  by 
Sachsen, 
Schleswig-Holstein, 
Berlin,  Brandenburg  and  Thüringen,  all  recording 
contrast,  annual 
growth  of  0.6–0.7%.  By 
productivity  growth  was  negative  in  Nordrhein-
Westfalen, Hessen, Bremen and Saarland, all in the 
western  part  of  the  country.  Productivity  remains 
significantly  higher  in  the  western  and  southern 
part  in  2024,  with  rates  above  110%  of  the  EU 
average  (Hamburg  stands  out  at  131%).  In  the 
eastern  regions  (except  Berlin),  it  is  below  the  EU 
average. 

(1) 2021-2023 average GDP per head in purchasing power 
standard compared with the EU average. 
Source: Commission calculations based on Eurostat 16 July 
2025 data. 

Key challenges for regional 
competitiveness 

Overall,  R&D  spending  remains  significantly 
lower than the EU average in eastern regions 
and some other parts of the country, which is 
reflected in patent applications. In 2023, gross 
domestic  expenditure  on  R&D  (GERD)  was  lowest 
in  Niederbayern,  Weser-Ems,  Lüneburg,  Koblenz 
and  Münster  (0.7-1.16%  of  GDP),  whilst  business 
enterprise  R&D  expenditure  (BERD)  was  less  than 
0.5%  of  GDP 
in  Mecklenburg-Vorpommern, 
Sachsen-Anhalt,  Brandenburg,  Weser-Ems  and 
Münster.  R&D  activity  is  heavily  concentrated  in 
the  western  and  southern  regions.  The  strongest 
performers 
include  Braunschweig,  Oberbayern, 
Karlsruhe,  Rheinhessen-Pfalz  and  Stuttgart  (5.3-
7.8% of GDP GERD; 4–7.4% of GDP BERD), driven 
by strong industrial clusters. Similarly, Oberbayern 
and  Stuttgart  had  a  high  number  of  patent 
applications per million people in 2020-2022 (549 
and  499  applications,  respectively),  ranking  them 
among the EU’s leading innovation regions. In less 
developed  areas,  less  than  50  patents  per million 
people were filed. 

128 

 
 
 
 
 
 
 
Table A18.1:Main development trends, challenges and the concentration of resources 

Source: European Commission based on Eurostat data; categories of regions based on Map 18.1 

Kassel, 

innovator  regions (521)  R&D 
In  moderate 
in 
largely  stagnated: 
performance  has 
Münster, 
and 
Mecklenburg-Vorpommern, the regional innovation 
index  values  show  a  decline  over  the  last  three 
years,  whereas 
Sachsen-Anhalt, 
Saarland, 
Chemnitz  scored  minimal  advances.  Although 

Trier,  Niederbayern 

(521) Classification of European Commission, 2025, Regional 

Innovation Scoreboard. 

regional  smart  specialisation  strategies (522)  and 
national  frameworks  (e.g.  High-Tech  Agenda)  (see 
Annex 4) provide good strategic frameworks, they 
often  fail  to  address  structural  improvements  of 

(522) Smart specialisation strategies are strategic, territorially 

based frameworks for innovation and industrial policy that 
help Member States and regions identify and leverage their 
unique comparative advantages to address structural 
challenges, foster economic transformation and enhance 
competitiveness. 

129 

Main development trendsTransition regions (population 21.83 million)Accordingtoavailabledatafrom2021-2023,thefollowingregionsfulfilthecriteriatobetransitionregions:Brandenburg,Mecklenburg-Vorpommern,Lüneburg,Münster,Koblenz,Trier,Dresden,Chemnitz,Leipzig,Sachsen-Anhalt,Schleswig-HolsteinandThüringen.InMünster,Koblenz,Leipzig,andSchleswig-HolsteinGDPperheadvaluehasfallenbelowtheEUaverageof100%.Still,itisMecklenburg-Vorpommern,Lüneburg,Trier,Chemnitz,Sachsen-Anhalt,andThüringenthathaveaGDPperheadvaluelessthan90%ofEUaverage.Brandenburg,Dresden,Münster,Koblenz,Leipzig,Schleswig-HolsteinareclosertotheEUaverage.Amongthetransitionregions,westernTrierandeasternChemnitzhadthelowestrealGDPgrowthbetween2014and2023.KoblenzandTrierinthewesthadthelowestrealGDPperheadgrowthinthesameperiod.ThenewwesterntransitionregionsMünsterandKoblenzshowlowrealproductivitygrowthperhourworkedcomparedtoallother German transition regions.More developed regions (population 61.63 million)WithGDPperheadatorabove120%oftheEUaverage,themoredevelopedregionsareStuttgart,Karlsruhe,Tübingen,Oberbayern,Oberpfalz,Mittelfranken,Berlin,Bremen,Hamburg,Darmstadt,Braunschweig,Köln.TheseheavilyindustrialisedregionsaregrowthcentresfortheGermaneconomy.However,assomeoftheseregionshavestrongautomotivesectors,competitivepressureisincreasing(fromChinesecompetition,energyprices,greentransformation)andthereisaworryingtrendofthesemoredevelopedregions falling behind.Specific territoriesAccesstobasicservicesvariesconsiderablybetweenruralandurbanareas.Peoplelivinginruralareaswithalowpopulationdensityfacelongertraveltimestohealthcareservices.Demographicchangewillmostlikelyaffecttheavailabilityofhealthcarestaffinthefuture.Inmostruralareas,children'saccesstoprimaryschoolisworsethantheEUaverage.Ruralhouseholdsandbusinessessufferfrompoorbroadbandconnectivity.Thetransitionawayfromligniteminingandlignite-basedenergyproduction(and,toalesserextent,theprocessingoffossilfuels),hastriggeredsocio-economicchallengesandinvestmentneedsspecifictojusttransitionterritories.Germany'scoastalareasshowmarkeddifferencesintheimportanceoftheblueeconomyasaneconomicdriver:Mecklenburg-Vorpommernreliesheavilyontourismandfisheries,increasingitsvulnerabilitytoenvironmentalpressuresanddecliningBalticfisheriesstocks,whileSchleswig-Holsteinhostsadiversifiedsector,includingaquacultureandmaritimeSMEs.Niedersachsenleadsinabsolutetermswithports,maritimetransportandoffshoreenergy,andHamburgis a major port and logistics hub, generating spillover effects across coastal regions. 
 
 
 
   
 
results 

into  economic  growth 

the R&D ecosystems. Even where there are strong 
public  research  institutions,  the  translation  of 
research 
is 
limited (523).  This  is  often  due  to:  (i)  insufficient 
commercialisation  of  research  results;  (ii)  limited 
funding  for  technology  transfer;  (iii)  a  lack  of 
international  talent  and  staff;  and  (iv)  a  lack  of 
curricula  addressing  entrepreneurship  education 
for  young  people (524)  (see  Annex  4  and  country-
specific  recommendation  on  commercialisation). 
Furthermore,  moderate  innovators  mainly  support 
generic  productive  investments  in  SMEs,  and  they 
smart 
do 
specialisation  strategies  as  a  guiding  framework 
for these investments. SMEs in these regions also 
struggle  to  integrate  into  strategic  value  chains 
with higher added value (525).  

systematically 

their 

use 

not 

regions  are 

Pfalz,  Düsseldorf,  Sachsen-Anhalt,  Köln  and 
Arnsberg (528).  These 
therefore 
particularly  exposed  to  high  energy  costs  and 
pressure  from  global  competition  (see  Annex  5). 
The  automotive  industry,  a  major  pillar  of  the 
its  dense  supplier 
German  economy  with 
networks (529),  accounts  for  a  significant  share  of 
in  Oberbayern, 
employment 
manufacturing 
Stuttgart, 
Niederbayern, 
and 
Bremen 
in 
It  accounts 
Braunschweig. 
Chemnitz,  Saarland,  Kassel  and  Leipzig  (Map 
A19.3).  This  industry  is  exposed  to  competitive 
pressure  from  China,  high  transition  costs  to 
electric  mobility  and  falling  profits  (see  Annex  5). 
Considering these challenges, there is more scope 
for  accelerating  the  shift  to  electric  vehicle  and 
battery production. 

for  16-19% 

in  Bayern 

Start-up  activity 
is  uneven  across  the 
country.  In  2025,  the  highest  numbers  of  newly 
(785), 
established  start-ups  were 
Nordrhein-Westfalen  (658)  and  Berlin  (619)  (see 
Annex  4).  By  contrast,  very  few  start-ups  were 
created  in  Sachsen-Anhalt  (33),  Thüringen  (27), 
Mecklenburg-Vorpommern  (17)  in  the  east  and  in 
western  Saarland  (22)  and  Bremen  (19) (526).  One 
major  reason  for  these  differences  is  private 
capital  financing,  which  is  focused  on  established 
the  process  of 
industrial  hubs.  Additionally, 
starting  a  business 
is  not  yet  sufficiently 
digitalised.  Firms  outside  these  hubs  perceive 
higher risks and face more limited access to both 
equity  and  debt  funding,  further  exacerbating 
capital  bottlenecks  in  eastern  and  structurally 
weaker regions (527) (see Annex 6).  

Strong  competition  from  non-EU  countries 
and decarbonisation are major challenges for 
the  high-value  industrial  hubs,  which  are 
located  mostly  in  western  and  southern 
regions.  The  highest  shares  of  employment  in 
energy-intensive  industries  are  in  Rheinhessen-

(523) Bundesministerium für Bildung und Forschung, 2024, 

Bundesbericht Forschung und Innovation, bundesbericht-
forschung-innovation.de.  

(524) Deutsche Industrie- und Handelskammer, 2025, DIHK-Report 

Unternehmensnachfolge 2025, dihk.de. 

(525) European Commission, 2022, Regional Competitiveness 

Index. 

(526) Start-up Verband, 2025, Next Generation Startup-

Neugründungen in Deutschland, startupverband.de.  

Map A18.2:  Automotive sector: share in total 
employment in industry, 2023 (%) 

Source: Eurostat 

Greenhouse gas emissions per capita in 2024 
remain  very  high  in  the  just  transition 
regions (530),  in  particular  in  Sachsen-Anhalt 

(528) Employment share of energy-intensive industries (C17, C20, 
C23, C24) of total employment in industry. Source: DG REGIO 
estimations and calculations based on Eurostat and JRC 
(ARDECO) data, 2023. 

(529) Germany accounts for around one third of all automotive 

employment in the EU and almost 60% of total EU wages in 
the sector. Source: DG REGIO estimations and calculations 
based on Eurostat and JRC (ARDECO) data, 2023.  

(527) EIB, 2024, Investment Report 2023–24: Transforming for 

(530) Just transition regions at NUTS 2 level, as first outlined in 

competitiveness, data.europa.eu.  

Germany’s territorial just transition plans.  

130 

 
 
 
 
 
 
in 

just 

these 

transition 

the  other  six 

and  Brandenburg.  Emissions 
two 
regions  reached  levels  of  around  16-18 tCO2eq, 
and 
regions 
(Düsseldorf,  Köln,  Münster,  Chemnitz,  Leipzig  and 
Dresden)  also  scored  significantly  above  the  EU 
average. Additionally, green employment (531) in all 
the just transition regions is below the EU average 
(15%),  except  Düsseldorf  and  Köln.  Despite  the 
they  have 
challenges  facing 
opportunities  to  diversify  their  economies  and 
benefit  from  spillovers  from  stronger  growth 
centres (532).  

regions, 

these 

is  significant 

regions  for  solar  PV 

There 
room  for  further 
developing  renewable  energy  generation, 
especially in the south, and to make buildings 
more  energy  efficient,  particularly  in  the 
western  and  northern  parts  of  the  country. 
Renewable  energy  generation  is  concentrated  in 
northern and eastern regions for wind (Schleswig-
Holstein,  Brandenburg,  Sachsen-Anhalt)  and  in 
southern 
(Oberbayern, 
Niederbayern,  Tübingen).  This  distribution  is  not 
aligned with the south’s energy needs and impacts 
hydrogen  production,  with  the  largest  planned 
green  hydrogen  projects  being  in  the  northern 
regions 
and 
Nordrhein-Westfalen (533)  (see  Annex  8).  Despite 
improvements, energy efficiency in buildings could 
be  further  incentivised,  especially  in  the  northern 
and  western  regions  (see  Annex  9)  where  more 
than 50% fall into or below energy class E (534).  

of  Niedersachsen,  Hamburg, 

Germany  is  increasingly  vulnerable  to  the 
impacts  of  climate  change,  with 
the 
economic impact varying across regions (see 
Annex  10).  Water  resilience  (see  Annex  10)  and 
air  quality 
regional 
differences.  Water  pollution 
is  particularly 
challenging, with over-fertilisation in the Baltic Sea 
and  North  Sea.  Furthermore,  groundwater  use 

(see  Annex  8)  show 

(531) Representing jobs contributing to environmental 

sustainability; Regional Competitive Environmental 
Sustainability indicator, publications.jrc.ec.europa.eu. 

the 

varies  considerably  among  regions,  with  northern 
largest 
and  southern  regions  extracting 
volumes of groundwater (535). This is of concern as 
over two thirds of drinking water needs are met by 
groundwater.  The  impact  of  climate  change  on 
groundwater is projected to be greater by the end 
of  the  century,  particularly  in  the  north  and  the 
east (536).  Germany’s  blue  economy  could  benefit 
from a shift to stricter nutrient control, ecosystem-
based management, and climate-robust water and 
groundwater  governance,  especially  in  the  North 
Sea and Baltic Sea basins. 

an 

and 

decline 

annually 

1.2-1.6% 

Brandenburg 

Eastern  regions  are  particularly  affected  by 
demographic 
ageing 
population. On demographic trends, most eastern 
(Chemnitz,  Sachsen-Anhalt,  Thüringen, 
regions 
Mecklenburg-Vorpommern, 
and 
Dresden) rank among the 20% weakest regions in 
the  EU.  Natural  population  growth  has  only  been 
positive  in  Berlin  and  Hamburg.  The  working-age 
population (20-64) has also been shrinking rapidly, 
by 
in 
Mecklenburg-Vorpommern,  Thüringen,  Sachsen-
Anhalt  and  Chemnitz.  With  young  people  (0-20 
years)  accounting  for  only  around  17%  of  the 
population, these areas face mounting pressure to 
maintain  their  workforce,  which 
is  a  major 
bottleneck to their growth potential and economic 
performance  in  the  long  term.  In  several  eastern 
regions,  one  quarter  to  one  third  of  residents  are 
aged  65  or  older:  Mecklenburg-Vorpommern  and 
Brandenburg  have  seen  the  largest  increases  in 
the group (by around 2 percentage points in 2024) 
(see Annex 15). 

(2015-2024) 

School  accessibility  is  limited  in  many  rural 
areas. Long commuting times require provision of 
complex  bus  systems.  Limited  access  can  hinder 
children  from  attending  upper  secondary  school, 
affecting 
their  future  education  and  career 
prospects (537).  The  share  of  children  with  a 
primary  school  within  a  15-minute  walk  is  below 
the EU average (34%) in rural areas of all regions 

(535) Lütkemeier, R., Kuhn, D., 2025, Grundwasserstress in 

(532) Rodríguez-Pose & Bartalucci, 2024, The green transition and 

Deutschland. 

its potential territorial discontents, doi.org. 

(533) Institute of Energy Economics at the University of Cologne, 
2026, ewi.uni-koeln.de ; Leibniz-Institut für Länderkunde, 
2024, nationalatlas.de. 

(534) Analysis of housing offers and energy efficiency classes A to 
H (EPBD 2024); CBRE Germany, 2025, CBRE Analyse zeigt: 
Der aktuelle Wohnungsbestand in Deutschland entspricht im 
Durchschnitt der Energieeffizienzklasse D, assetphysics.com. 

(536) OECD, 2023, Environmental Performance Reviews: Germany 

2023, oecd.org. 

(537) Mean car journey time in minutes was highest in low 

population areas and lowest in cities in 2016, measuring the 
accessibility of various educational facilities (including the 
nearest primary schools, lower secondary school and upper 
secondary school); Equivalence report, 2024, 
bundeswirtschaftsministerium.de. 

131 

 
 
 
Table A18.2:Key regional indicators (at NUTS 1 level) for Germany 

Dark green – the indicator is at least 120% of the EU average. 
Light green – the indicator is at least 100% but less than 120% of the EU average. 
Yellow – the indicator is at least 90% but less than 100% of the EU average. 
Light red – the indicator is at least 75% but less than 90% of the EU average. 
Dark red – the indicator is less than 75% of the EU average. 
This colour scale applies to 'positive' indicators, where higher values are favourable. For 'negative' indicators, where higher values 
are unfavourable, the colours are reversed. 
Source: Eurostat and JRC 

except  Freiburg,  Karlsruhe,  Stuttgart,  Tübingen, 
Münster,  Bremen  and  Rheinhessen-Pfalz.  In  rural 
parts  of  some  eastern  and  western  regions,  it  is 
even  less  than  25%.  This  is  a  major  obstacle  to 
attracting  and  keeping  young  people  in  these 
areas and to the right to stay. 

Digital  connectivity  is  problematic,  including 
in  several  rural  areas.  The  coverage  of  very 
high-capacity  networks  (VHCN)  in  rural  areas  is 
below the EU average (see Annex 5). Fixed network 
speeds  in  Germany  reach  140 Mb/s  in  cities  (EU 
206 Mb/s),  125 Mb/s  in  towns  and  suburbs  (EU 
156 Mb/s),  and  only  100 Mb/s  in  rural  areas  (EU 
145 Mb/s). A similar pattern is observed for mobile 
networks, where rural areas continue to experience 
significantly 
the  EU 
average (538).  The  digital 
transformation  of 

speeds 

slower 

than 

businesses  varies  across  regions  and  between 
cities  and  rural  regions (539).  Eastern  regions 
(Berlin,  Brandenburg,  Mecklenburg-Vorpommern, 
Sachsen,  Sachsen-Anhalt  and  Thüringen) 
lag 
behind  in  using  digital  products  and  adopting 
digital  processes  whilst  northern  areas  (Bremen, 
Hamburg,  Niedersachsen  and  Schleswig-Holstein) 
struggle  with  digital  business  models.  Barriers 
include a lack of digital skills, limited awareness of 
digital  transformation  benefits,  underdeveloped 
support 
insufficient  data 
management skills (540). 

ecosystems  and 

(539) BMWK, 2024, Digitalisierung der Wirtschaft in Deutschland, 

iwkoeln.de. 

(540) Eger, T., Scheufen, M., 2024, Data Sharing in Deutschland, 

(538) Rural Observatory, observatory.rural-vision.europa.eu. 

wirtschaftsdienst.eu. 

132 

GDP per head (PPS, index)Growth in natural populationReal GDP per head growthProductivity: GDP (PPS) per hour worked (index)Population aged 25-34 with high educational attainmentR&D expenditureR&D expenditure in business enterprise sector (BERD)GVA in industryICT patent applications to the EPO - avg 3 yearsEU27=100Average annual change per 1000 residentsAverage annual % changeEU27=100% of population aged 25-34% of GDP% of GDP% of total GVANumber-count20242015-20242014-202420232025202320232023avg.2020-2022EU100-1.71.410044.82.241.5119.393Germany116-2.70.612440.93.132.1624.5344Baden-Württemberg131-0.80.413644.45.634.8634.2601Bayern135-1.20.613646.13.372.6027.51126Berlin1270.41.912255.33.041.129.0146Brandenburg86-6.10.711031.81.490.3022.423Bremen132-1.9-0.412339.92.800.8524.18.5Hamburg1960.90.715148.72.621.6813.922Hessen132-1.70.313340.72.982.2018.5203Mecklenburg-Vorpommern88-6.61.610329.41.370.1817.80.6Niedersachsen107-3.30.712037.42.721.8726.3108Nordrhein-Westfalen109-2.70.212037.42.261.3322.0242Rheinland-Pfalz100-3.10.312237.43.532.9526.564Saarland95-6.0-0.711229.61.620.4928.35.6Sachsen90-6.10.910239.92.250.6523.866Sachsen-Anhalt83-8.31.010428.91.450.3226.615Schleswig-Holstein97-4.21.011232.41.530.6320.221Thüringen83-6.80.69935.62.581.1227.632  
 
 
 
   
 
challenges.  Furthermore, 

Housing  affordability,  reflected  in  the  price-
to-income ratio (541), is a particular challenge 
in  southern  regions.  Similarly,  house  purchase 
capacity (542)  in  parts  of  Oberbayern  is  less  than 
35%. Here strong labour markets are colliding with 
limited affordable housing supply (543), which could 
negatively  affect  these  region’s  competitiveness 
and  attractiveness,  exacerbating  their  industrial 
the 
transformation 
housing  cost  overburden  rate (544)  in  2024  was 
highest  in  Weser-Ems,  Schleswig-Holstein  and 
Rheinhessen-Pfalz (545).  By  contrast,  this  rate  was 
at  8%  or  less  in  not  only  eastern  Chemnitz  and 
Mecklenburg-Vorpommern  but  also 
southern 
Oberfranken (Map A18A19.3). This is partly due to 
stagnant  markets  and  vacant  buildings  resulting 
from population decline, for example in rural parts 
of  eastern  Thüringen  and  western  Saarland  (546), 
for 
and 
permitting 
housing 
construction 
issues 
availability (see 
underscore 
the 
‘construction  accelerator’  (Bau-Turbo)  effectively 
at regional and municipal levels. 

negatively 
Annex 
need 

These 
implement 

procedures 

impacting 

16). 
to 

complex 

the 

disparities 

are  widening 

There 
in 
administrative capacity between larger cities 
and  economically  stronger  regions  on  one 
side  and  economically  weaker  eastern 
regions  on  the  other.  Challenges  include:  (i) 
human resource shortages; (ii) gaps in digital  and 
performance 
technical 
management;  (iv)  public  procurement;  and  (v) 
outdated  administrative  processes.  There  are 
already  more  than  100 000  unfilled  positions  in 
municipalities due to a lack of qualified applicants, 

capabilities; 

(iii) 

(541) The indicator measures, at NUTS 3 level, the ratio between 
the (average) housing price for 100 square metres and the 
(average) income (GDP) per capita. 

(542) The indicator measures square metres that can be purchased 

via mortgage using a third of disposable income. 

(543) Sides, L., 2025, What is driving European cities’ housing 

affordability challenge?, oxfordeconomics.com. 

(544) The housing cost overburden rate is the percentage of the 

population living in households where the total housing costs 
(‘net’ of housing allowances) represent more than 40% of 
disposable income (‘net’ of housing allowances). 

(545) These NUTS 2 regions rank among the lowest quintile in the 
EU, where more than 12% of the population spent over 40% 
of their disposable income on housing. 

(546) SPD-Fraktion Saarland, 2022, Aktionsprogramm für mehr 

bezahlbaren Wohnraum im Saarland, spd-fraktion-saar.de; 
vtw, 2025, Daten und Fakten der Wohnungswirtschaft in 
Thüringen 2025, vtw.de. 

and  without  further  digitalisation,  this  number  is 
estimated  to  grow  to  230 000  by  2030.  This  will 
be  exacerbated  by  the  expected  retirement  of 
almost  one  third  of  current  local  government 
employees  (500 000  people  out  of  around  1.65 
million) by 2030 (547).  

Map A18.3:  Housing cost overburden (% of 
population), 2024 

Source: Eurostat. The overburden rate should be read 
together with the tenure structure (homeowner, tenants), that 
may differ across country and regions. 

robust  administrations.  By 

Administrative  quality  varies  across  regions. 
Larger cities and economically strong regions have 
more 
contrast, 
economically  weaker  eastern  regions  often  have 
the  lowest  capacity.  In  these  regions,  increasing 
including  sharing 
inter-municipal  cooperation, 
services,  experts  and 
is  becoming 
necessary (548). Demographic constraints in eastern 
and  rural  western  regions  may  result  in  further 
staff shortages and unmet recruitment needs.  

staff, 

the  urban-rural  divide 

The limited capacity of smaller municipalities 
exacerbates 
in 
attracting  economic  activity.  Bureaucratic 
obstacles, 
and 
permitting 
inadequate  digitalisation  (see  Annexes  5  and  7) 
hinder  the  development  of  the  regional  business 

processes 

long 

(547) DStGB, 2025, Demografie: Schleichenden Blackout der 

öffentlichen Verwaltung abwenden, dstgb.de. 

(548) DStGB , 2025, Demografie: Schleichenden Blackout der 

öffentlichen Verwaltung abwenden, dstgb.de. 

133 

 
 
 
 
 
 
are 

face 

clear 

There 

rural  municipalities 

environment. 
urban-rural 
discrepancies.  Larger  cities,  such  as  München  and 
Hamburg,  use  sophisticated  zoning  tools  while 
smaller 
capacity 
limitations  and  outdated  planning  methods (549). 
Certain  Metropolitan  Regions (‘Metropolregionen’) 
have 
in  spatial 
governance  (550).  The  efficiency  of  regional  and 
municipal  authorities 
industrial, 
environmental and spatial planning licences varies 
considerably,  whilst  public  support  services  for 
companies 
(e.g.  digital  one-stop-shops,  e-
permitting systems) are often inefficient (551). 

institutionalised  cooperation 

in  managing 

and 

backlog, 

infrastructure 

The  transfer  of  responsibilities  to  local 
authorities lacks a corresponding increase in 
funding. This hinders public investments, creating 
an 
limits 
competitiveness.  Municipalities  perform  many 
tasks  delegated  by  federal  or  regional  laws,  for 
example,  administering  social  benefits,  managing 
schools  and  childcare  or  enforcing  building 
regulations  on  behalf  of  higher  levels.  In  recent 
years,  local  governments  have  often  complained 
about  receiving  new  or  expanded  duties  without  
a  corresponding  increase  in  financial  resources. 
This 
lack  of 
coordination  and  targeting  of  existing  funding 
streams,  such  as  tax-sharing,  fiscal  equalisation 
between  the  Länder  (‘Länderfinanzausgleich’)  and 
transport,  housing, 
federal  grants 
partly 
education 
compensate  for  new  duties  by  pooling  resources 
and  adopting  online  service  bundles  developed  in 
other municipalities under the Online Access act. 

for  e.g. 
(552).  Municipalities 

is  further  exacerbated  by  a 

could 

(549) Hoyler, M., Freytag, T., & Mager, C., Advantageous, 2006, 

Fragmentation? Reimagining Metropolitan Governance and 
Spatial Planning in Rhine-Main, jstor.org; Jehling, M., & Hecht, 
R., 2022, Do land policies make a difference? A data-driven 
approach to trace effects on urban form in France and 
Germany, researchgate.net. 

(550) OECD, 2024, Coordinating spatial planning and investment 

across state and local boundaries in the Hamburg 
Metropolitan Region, oecd.org ; Yan, S., & Growe, A., 2022, 
Regional Planning, Land-Use Management, and Governance 
in German Metropolitan Regions—The Case of Rhine–Neckar, 
doi.org.  

(551) Nationaler Normenkontrollrat, 2025, Bündelung im 

Föderalstaat. Zeitgemäße Aufgabenorganisation für eine 
leistungsfähige und resiliente Verwaltung, 
normenkontrollrat.bund.de. 

(552) Grundke, R., & Sunel, E., (no date), Germany: Fostering 
regional development in times of structural change – 
ECOSCOPE, oecdecoscope.blog; OECD, 2025, Economic 
Surveys: Germany 2025, oecd.org. 

134 

 
 
 
 
ANNEX 19: TRANSPORT 

This  Transport  Annex  presents  the  state  of  play, 
and  the  challenges  Germany  faces  with  the 
implementation  of  the  trans-European  transport 
network  (TEN-T),  the  European  railway  traffic 
management system (ERTMS)  and the roll-out  of 
Sustainable Aviation Fuels (SAF). 

Five  European  transport  corridors  cross 
Germany  (Rhine  –  Danube,  Scandinavian  – 
Mediterranean, North Sea – Baltic, North Sea 
– Rhine-Mediterranean). The German TEN-T rail 
network  is  15 117 km  long  (9 367  of  which  are 
on  the  core  network).  The  TEN-T  road  network  is 
11 580 km  long  (6 452  of  which  on  the  core 
network). Germany has 4 173 km of TEN-T inland 
waterways,  24  TEN-T  airports  (including  11  core 
airports),  108  TEN-T  ports  (including  23  core 
ports) and 78 urban nodes (553). 

Germany’s  rail  network  faces  significant 
modernisation  challenges.  Given  its  central 
location in the European transport network, these 
the  whole  European 
pose  a  challenge  for 
transport system.  

and 

to  modernising 

The  ERTMS  is  essential  to  digitalising  the 
and 
railways 
harmonising 
railway  operations  across 
Europe.  The  ERTMS  ensures  the  safety  of  rail 
networks by providing a unified signalling system 
that  significantly  reduces  the  risk  of  accidents.  It 
also  provides  interoperability  between  national 
rail 
train 
to  strengthen 
movements. 
to 
relationships  with  neighbouring  countries 
create  a 
railway 
undertakings operating across borders. Finally, the 
and 
ERTMS 
operational 
the 
competitiveness of the rail sector. 

capacity 
increasing 

improving 
is 

level  playing 

cross-border 

efficiency, 

important 

enhances 

systems, 

network 

field 

for 

It 

ERTMS  was  operational  on  only  3%  of  the 
total  TEN-T  rail  network  in  Germany  by  the 
end  2024 (554)  and  only  on  specific  and 
disperse  line  sections.  To  meet  its  national 
plan’s  ERTMS  roll-out  target  by  2035,  Germany 
aims to deploy the ERTMS on a further 6 103 km. 

(553) TENtec Information System, according to Reg. 2024/1679. 

(554) Based on ERTMS – Third work plan of the European 

coordinator Matthias Ruete.  

135 

However,  a  plan  for  the  decommissioning  of  the 
legacy  signalling  systems  is  lacking.  Due  to  its 
size  and  location,  Germany  could  be  a  game 
changer in terms of ERTMS deployment in Europe. 

Infrastructure  bottlenecks  in  heavily  used 
German  corridor  sections  are  causing 
in  the 
capacity  restrictions,  particularly 
hinterland  of  Hamburg,  between  Berlin  and 
the  Rhine/Ruhr  area  as  well  as  on  the  lines 
towards  Frankfurt  am  Main.  Furthermore, 
capacity  bottlenecks  are  occurring 
the 
surroundings of major urban nodes.  

in 

The 

railway 

In  northern  Germany,  the  priority  sections 
complete  the  European  transport  corridors 
between Scandinavia and the Mediterranean 
as  well  as  between  the  North  Sea  and  the 
lines  between 
Baltic  Sea. 
Hamburg/Bremen  and  Hannover  face  significant 
capacity  constraints,  hampering 
freight 
transports  towards  the  North  Sea  ports.  Also,  in 
view  of  the  expected  additional  passenger  and 
freight  volumes,  especially  in  the  Hamburg  area, 
following  the  opening  of  the  Fehmarn  Belt  fixed 
link  to  Denmark  and  Sweden.  Furthermore,  the 
line  between  Berlin  and  Hannover  and  towards 
the  Netherlands  and  Belgium  faces  capacity 
constraints,  impeding  faster  passenger  services 
and  an  increased  number  and  length  of  freight 
trains.  

rail 

In  central  and  southern  Germany,  the  line 
between Erfurt/Fulda and Frankfurt am Main 
is where three European  transport  corridors 
meet.  It  is  experiencing  a  major  lack  in  capacity 
and  relatively  low  line  speeds  hampering  north-
south  and  east-west  connectivity.  South  of 
Frankfurt,  the  line  from  Karlsruhe  to  Basel  is 
essential  for  transports  between  the  North  Sea 
lacks 
Italian  ports  via  Switzerland  but 
and 
capacity. 

The  modernisation  of  Germany’s  railway 
infrastructure  faces  significant  challenges. 
Renovation  prices  have  risen  rapidly  as  the 
demand  for  construction  works  exceeds  the 
capacity  of  the  construction  industry,  including 
shortages  of  skilled  workers.  Digitalisation  has 
been  delayed  due  to  funding  gaps,  outdated 
infrastructure  and  staff  shortages.  Railway 
projects  tend  to  face  timing  challenges  as  the 

 
 
 
 
 
Table A19.1:ERTMS deployment in Germany. 

Source: Based on ERTMS – Third work plan of the European Coordinator Matthias Ruete. 

rules  of  the  single  European  railway  area. 
Harmonising  technical  and  operational  rules  with 
the minimisation of national rules in line with the 
EU  directives  on  rail  interoperability  and  safety 
remains  critical  to  ensure  seamless  cross-border 
rail transport. 

planning  and  permitting  process  is  often  lengthy 
slowing down the construction works.  

As  yet  there  is  no  joint  German-Danish 
model on how to efficiently operate railway 
traffic  on  the  Fehmarnbelt  cross-border 
section, 
traffic  management, 
maintenance and operations in line with the 

covering 

Germany  has  a  strong  industrial  base  to 
produce  sustainable  aviation  fuels  (SAF), 
with over 15 projects currently in development to 
produce  hydrogen-based  aviation  fuels  (eSAF).  It 
is home to the only eSAF pilot plant in the EU that 
has  reached  Final  Investment  Decision,  but  the 
remaining ones are not commercialised, and most 
projects  are  only  pilot  or  demonstration 
facilities (555).  As  an  active  member  of  the  eSAF 
Early  Movers  Coalition,  mobilising  national 
funding for a double-sided auction mechanism in 
2026-2028  is  required  for  the  deployment  of 
those eSAF projects.  

(555) ReFuelEU Aviation Annual Technical Report 2025 -– 2024 in 

review. 

136 

 
 
 
 
 
 
 
 
 
Map A19.1:  TEN-T Cross-Border & National Priority Sections in Germany. 

137