Germany plans extra borrowing over war and energy crisis

The war in Ukraine and the fallout from soaring energy prices and sanctions against Russia will force Germany to take on more debt than expected this year, Finance Minister Christian Lindner said Wednesday.

German Finance Minister Christian Lindner speaks on Wednesday at a press conference.
German Finance Minister Christian Lindner speaks on Wednesday at a press conference. Photo: picture alliance/dpa | Michael Kappeler

After the government signed off on a “core” draft budget for 2022 that includes 99.7 billion euros ($110 billion) in new debt, Lindner said a supplementary budget was in the works that will take into account Russia’s invasion of Ukraine and its economic consequences.

He declined to speculate how large the extra borrowing would be, saying the “uncertain times” made predictions difficult.

“With Russia’s illegal attack on Ukraine, the world has changed once again and now we have to assume that we will also face additional burdens on the federal budget and additional expenditure,” Lindner told a Berlin press conference.

After years of chasing balanced budgets, traditionally frugal Germany took on huge debt in 2020 and 2021 to help Europe’s biggest economy cope with the coronavirus pandemic, lifting its constitutionally enshrined debt limits to do so.

Germany had hoped to scale down new borrowing in 2022 as it recovers from the coronavirus shock, but that was before the conflict in Ukraine shook the continent.

READ ALSO: German government announces fresh relief package for high energy costs

Aid, refugee support and help for German households

Talks are now ongoing among Germany’s governing coalition parties – the Social Democrats, the Greens and Lindner’s liberal FDP – about preparing a
supplementary budget “as soon as possible”, Lindner said.

The focus will be on costs for humanitarian aid abroad, help for Ukrainian refugees arriving in Germany, and support for households and businesses as the war drives up energy costs and disrupts supply chains.

The government already unveiled a series measures earlier Wednesday aimed at cushioning the impact of sky-high heating bills and petrol prices, which have fuelled concerns about surging inflation in Europe.

Low-income households and students will be given a higher one-off heating allowance than previously envisioned, climbing to 350 euros for a two person household.

There will also be a boost to childcare benefits for poorer families.

To ease the financial burden on drivers facing record-high prices at the pump, Lindner said he was closely watching France’s example of a petrol rebate and Sweden’s move to temporarily cut fuel taxes.

Lindner said he still aimed to reinstate Germany’s “debt brake” in 2023, with just 7.5 billion euros in new borrowing planned.

Member comments

  1. So I make that 500 billion euroes borrowed in three years? My great great great great great great great great great grandkids can’t wait to pay that off.

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‘Russia must not win this war,’ says Germany’s Scholz

German Chancellor Olaf Scholz pledged once again to stand with Ukraine against Russia - but said Ukraine's bid to join the EU cannot be sped up.

'Russia must not win this war,' says Germany's Scholz

Scholz said the war in Ukraine was the greatest crisis facing the EU in its history, but that solidarity was strong. 

“We are all united by one goal: Russia must not win this war, Ukraine must prevail,” Scholz said in the speech to the Bundestag on Thursday.

Putin thinks he can use bombs to dictate the terms for peace, the SPD politician said. 

“He’s wrong. He was wrong in judging the unity of Ukrainians, and the determination of our alliances. Russia will not dictate peace because the Ukrainians won’t accept it and we won’t accept it.”

Scholz said it was only when Putin understands that he cannot break Ukraine’s defence capability that he would “be prepared to seriously negotiate peace”.

For this, he said, it is important to strengthen Ukraine’s defences. 

Scholz also pledged to help cut Europe free from its reliance on Russian energy. 

The Chancellor welcomed the accession of Finland and Sweden to Nato. “With you at our side, Nato, Europe will become stronger and safer,” he said.

However, Scholz dampened expectations for Ukraine’s quick accession to the EU.

“There are no shortcuts on the way to the EU,” Scholz said, adding that an exception for Ukraine would be unfair to the Western Balkan countries also seeking membership.

“The accession process is not a matter of a few months or years,” he said.

Scholz had in April called for Western Balkan countries’ efforts to join the EU to be accelerated amid a “new era” in the wake of Russia’s invasion of Ukraine.

Last October, EU leaders at a summit in Slovenia only reiterated their “commitment to the enlargement process” in a statement that disappointed the six candidates for EU membership — Albania, Bosnia, Serbia, Montenegro, North Macedonia and Kosovo – who had hoped for a concrete timetable.

“For years, they have been undertaking intensive reforms and preparing for accession,” Scholz said on Thursday.

“It is not only a question of our credibility that we keep our promises to them. Today more than ever, their integration is also in our strategic interest,” he said.

The chancellor said he would be attending the EU summit at the end of May “with the clear message that the Western Balkans belong in the European Union”.

Scholz also called for other ways to help Ukraine in the short term, saying the priority was to “concentrate on supporting Ukraine quickly and pragmatically”.

France’s President Emmanuel Macron has also said it will take “decades” for a candidate like Ukraine to join the EU, and suggested building a broader political club beyond the bloc that could also include Britain.