Germany resorts to record borrowing

The government has unveiled plans to issue €539 billion in debt next year

Germany’s federal government intends to issue a record volume of debt next year to fund costs associated with the energy crisis, the German Finance Agency has revealed.

According to the plan released on Wednesday, debt issuance will balloon to about €539 billion ($573 billion) in 2023 from €449 billion ($477 billion) this year. The previous record was in 2021, when the government was attempting to offset the fallout from the Covid-19 pandemic.

Borrowing next year will reportedly include federal bonds worth €274 billion ($291 billion) and a further €242 billion ($257 billion) to be sold on the money market. In addition, between €15 billion and €17 billion ($15.9 billion and $18 billion) will be raised via green federal securities and between €6 billion and €8 billion ($6.4 billion and $8.5 billion) via inflation-linked federal securities, the agency said.

The plan is “dramatic,” according to Elmar Voelker, a senior fixed-income analyst at LBBW Research in Stuttgart.

He told Bloomberg that “on the one hand, yields on longer-dated [bonds] could come under additional upward pressure as investors demand compensation for taking up the additional supply. On the other, the structural shortage of [bonds] could ease a good deal as a result of the additional supply.”

According to Reuters, the country’s spending is expected to exceed revenues in the coming year, when the federal government will also have to repay securities worth more than €325 billion ($345.2 billion) to investors.

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Germany, Europe’s biggest economy, has been struggling to cope with skyrocketing gas and electricity costs. The nation, which relies mainly on natural gas to power its industry, has vowed to replace imports from its major supplier Russia by as early as mid-2024. However, the attempts to diversify gas supplies have contributed to the current energy crunch. EU sanctions pressure, maintenance issues, as well as the sabotage of the Nord Stream pipelines, have further exacerbated the problem.

In response to the energy crisis, the German government has set out a €200 billion ($212.4 billion) “defensive shield” to protect households and businesses from soaring prices.

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