Finance | What a restructuring process means for Berlin

Difficult waters: Berlin could have to commit to dramatic austerity measures if it goes through a restructuring process. Photo: pixabay Berlin has to tremble: the capital could come into the focus of the Stability Council as early as the end of the year. “It can be assumed that the Stability Council will open an evaluation process at its meeting in December 2026,” says a draft of the state of Berlin’s financial planning that is circulating among Berlin journalists. It is unlikely that the proceedings can be averted, write the officials in the financial administration of Senator Stefan Evers (CDU).

The Stability Council - a joint body of the federal and state governments, in which Federal Finance Minister Lars Klingbeil (SPD) and the 16 state finance ministers are members - is intended to monitor the state budgets in order to prevent them from getting into budget emergencies at an early stage. As an “early warning system” it is intended to prevent the insolvency of individual federal states.

In fact, the future Berlin Senate is likely to be prepared for one or two appointments with the budget watchdogs: Evers had to inform the Stability Council of an impending budget emergency in October last year. Over the past three years, the capital has consistently outperformed three of the indicators relevant to the Stability Council's assessment.

Berlin's per capita debt is too high: 17,342 euros will be borne by every resident of the city in 2026. The amount allowed would be 16,986 euros. The outlier in the loan financing ratio is more dramatic. This refers to the proportion of expenditure in the core budget that is financed by new loans. The 6.1 percent of its expenses that Berlin finances from the capital market are well above the permitted 4.3 percent. The financing balance, i.e. the relationship between income and expenses, is also problematic. With a loss per inhabitant of 402 euros, Berlin exceeds the threshold of 217 euros by almost twice. The only thing in the green zone is the interest-tax ratio, i.e. the proportion of tax revenue that is spent on interest.

A restructuring process could have dramatic consequences for the Berlin state budget.

In case of doubt, however, Berlin would not have to enter into a restructuring process directly. As a rule, the Stability Council first carries out an evaluation process to check whether the country can return to blacker figures on its own. This evaluation usually takes several months. Only when an impending budget emergency is identified at the end does a restructuring process begin. A new state government would probably have until the summer of 2027 before things get serious.

A restructuring process would mean severe restrictions on Berlin's budget policy. A binding consolidation plan would then be decided between the Stability Council and the affected federal state. He not only formulates savings goals, but often also concrete measures. The restructuring programs usually run over a period of five years, during which time the Senate would have to report on savings progress every six months.

This would be nothing new for the capital. Berlin already went through a restructuring process from 2012 to 2016. The Senate had to commit to painful cuts. A cap on administrative expenses was decided and investments were reduced. Housing subsidies, for example, suffered as a result. The following statistics showed a significant decline in new construction. The so-called city tax – i.e. the accommodation tax – is also a product of this time.

A look at Bremen shows what the capital would face if it were to happen again. The German debt king has already been the subject of restructuring proceedings by the Stability Council several times. A corresponding program has currently been running since 2024. The agreed measures include a freeze on new hiring in administration and price increases for local public transport.

A look at the Hanseatic city also shows that the Stability Council's Damocles sword is not necessarily sharp. The committee has no direct sanction options. Although the Basic Law binds the states to their agreements, there are no practical options for enforcement. It is therefore not surprising that Bremen has repeatedly slipped into new proceedings since 2011 without any major consequences. Since 2020, the Stability Council no longer decides on funds itself. Previously, the restructuring procedures were tied to consolidation assistance, which could be withdrawn if requirements were broken. However, since a reform, the funds now known as restructuring aid have been allocated by the federal government according to its own criteria.

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