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ECONOMY

German debt set to balloon

Germany could have to take on another €312 billion in debt by 2013, according to finance ministry documents cited on the website of the magazine Der Spiegel.

German debt set to balloon
Finance Minister Peer Steinbrück. Not happy. Photo: DPA

For 2010, the ministry’s medium-term financing plan has pencilled in €86 billion in new debt, a record compared with the €50 billion forseen for this year.

The debt figures will be presented to the cabinet by Finance Minister Peer Steinbrück as part of the planning process for the 2010 budget, the magazine said.

Another €72 billion would be added in 2011, €59 billion in 2012 and €45 billion in 2013 to reach the total, according to the documents consulted by Spiegel.

In 2008, the government took on €11.5 billion in new debt to balance its budget as it sought to pull the economy out of the worst recession since 1945.

Government spending next year is expected to reach a record €328 billion owing to economic stimulus packages needed to fight the global economic crisis, the magazine said.

The labour ministry’s budget, which covers unemployment payments, is set to become the biggest spending item again at €153 billion.

Receipts of €28 billion per year are expected as a result of privatisations but according to the report, the government no longer has enough holdings to generate such a sum.

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ECONOMY

German consumer prices set to rise steeply amid war in Ukraine

Russia's war in Ukraine is slowing down the economy and accelerating inflation in Germany, the Ifo Institute has claimed.

German consumer prices set to rise steeply amid war in Ukraine

According to the Munich-based economics institute, inflation is expected to rise from 5.1 to 6.1 percent in March. This would be the steepest rise in consumer prices since 1982.

Over the past few months, consumers in Germany have already had to battle with huge hikes in energy costs, fuel prices and increases in the price of other everyday commodities.

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With Russia and Ukraine representing major suppliers of wheat and grain, further price rises in the food market are also expected, putting an additional strain on tight incomes. 

At the same time, the ongoing conflict is set to put a dampener on the country’s annual growth forecasts. 

“We only expect growth of between 2.2 and 3.1 percent this year,” Ifo’s head of economic research Timo Wollmershäuser said on Wednesday. 

Due to the increase in the cost of living, consumers in Germany could lose around €6 billion in purchasing power by the end of March alone.

With public life in Germany returning to normal and manufacturers’ order books filling up, a significant rebound in the economy was expected this year. 

But the war “is dampening the economy through significantly higher commodity prices, sanctions, increasing supply bottlenecks for raw materials and intermediate products as well as increased economic uncertainty”, Wollmershäuser said.

Because of the current uncertainly, the Ifo Institute calculated two separate forecasts for the upcoming year.

In the optimistic scenario, the price of oil falls gradually from the current €101 per barrel to €82 by the end of the year, and the price of natural gas falls in parallel.

In the pessimistic scenario, the oil price rises to €140 per barrel by May and only then falls to €122 by the end of the year.

Energy costs have a particularly strong impact on private consumer spending.

They could rise between 3.7 and 5 percent, depending on the developments in Ukraine, sanctions on Russia and the German government’s ability to source its energy. 

On Wednesday, German media reported that the government was in the process of thrashing out an additional set of measures designed to support consumers with their rising energy costs.

The hotly debated measures are expected to be finalised on Wednesday evening and could include increased subsidies, a mobility allowance, a fuel rebate and a child bonus for families. 

READ ALSO: KEY POINTS: Germany’s proposals for future energy price relief

In one piece of positive news, the number of unemployed people in Germany should fall to below 2.3 million, according to the Ifo Institute.

However, short-time work, known as Kurzarbeit in German, is likely to increase significantly in the pessimistic scenario.

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