Germany to borrow €250 billion to service debt

Germany intends to borrow up to €250 billion ($329 billion) from the markets in 2012, less than this year's level, the government's financing agency said Wednesday.

Germany to borrow €250 billion to service debt

“The annual preview of government issuance in 2012 contains one-off issues with a total volume of €250 billion, which will serve to finance the federal government budget and the special funds of the federal government in 2012,” the agency said in a statement.

In 2011, Germany had initially planned to raise €302 billion before revising the figure downward to €275 billion, with two-thirds coming from the bond market and one-third from the money market.

The fresh money borrowed will be used to repay the country’s debts and the interest on them, the agency said.

Germany, Europe’s top economy, has more than €2.0 trillion in debt or more than 80 percent of its gross domestic product, resulting in interest charges of tens of billions of euros annually.

It benefits from lower borrowing rates compared to many of its partners in the eurozone, which have been hit hard by sinking investor confidence.

However market volatility has taken its toll. Investors shunned a November auction of German 10-year bonds, considered the gold standard of eurozone debt, in a development that sent shock waves

through the single currency area.

But it had better luck with an issue of two-year treasury notes this month which saw strong demand and brought in more than €4.0 billion.

In its breakdown of government borrowing, the agency said it would continue issuing treasury discount papers or “Bubills” on a six-month basis (€4.0 billion) and a 12-month basis (€3.0 billion) next year.

New federal treasury notes with two-year maturity known as “Schätze” will be auctioned in February, May, August and November, with an outstanding volume for each note set at €15 billion.

Five-year federal notes or “Bobls” will also continue with three new series with a volume of €4.0 billion. Reopenings of the note are planned for February, March and April with a total volume of €15 billion.

Another series will be issued in May and September with a volume of €5.0 billion each.

Federal bonds with a 10-year maturity, known as “Bunds”, are planned in 2012 with a total outstanding volume of €20 billion. Thirty-year Bunds will have a total outstanding volume of €15 billion.

“Depending on the funding requirements and liquidity situations of the federal government, as well as on the market situation, the amounts and issue dates in the annual preview remain subject to change,” the agency said.

“However the federal government intends to adhere to the announced issuance calendar as far as possible in order to provide market.”


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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.


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.