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UKRAINE

Germany boosts borrowing to tackle Ukraine war costs

Germany will take on an additional €39.2 billion ($42.1 billion) of debt in 2022 to counter the economic impact of the war in Ukraine, sources in the Finance Ministry said on Monday.

Finance Minister Christian Lindner
Finance Minister Christian Lindner (FDP) speaks at a Berlin press conference on April 8th. Photo: picture alliance/dpa | Fabian Sommer

The supplementary budget, set to be put to the cabinet on Wednesday, will raise the total of new borrowing for the year to €138.9 billion.

The additional debt package was a “timely and targeted” response to the outbreak of war in Ukraine, the sources said, with the money intended to help businesses and households deal with rising energy costs as a result of the war, as well as financing humanitarian aid to Ukraine.

After years of chasing balanced budgets, traditionally frugal Germany took on huge amounts of 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.

The government had planned to take on €99.7 billion in 2022 as part of its “core” budget, but the war in Ukraine has forced Germany to adjust its calculations.

At the beginning of April, the government agreed a €5 billion support packet for business to help tackle rising energy costs.

Taxpaying households will also receive a €300 allowance to help match the increase in their bills, with people receiving housing benefit will also get a one-off lump sum.   

Meanwhile, drivers will benefit from a cut in the energy tax on petrol and public transport users can take advantage of €9 per month ticket for three months over summer. 

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Humanitarian aid for Ukraine was also included among the new spending items, while the government has set about building up gas reserves to reduce its dependency on supplies from Russia.

In total, €26.3 billion of the new debt consists of new spending, while the other €12.9 billion is to account for lower tax receipts as businesses suffer the impact of the war.

The government still aims to reinstate and stay within its debt rules in 2023, limiting the amount of new debt to €7.5 billion.

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POLITICS

Scholz says Germany to become biggest NATO force in Europe

Germany's investments in defence in the wake of Russia's invasion of Ukraine will transform it into the biggest contributor to NATO in Europe, Chancellor Olaf Scholz said on Tuesday.

Scholz says Germany to become biggest NATO force in Europe

Alongside the United States, Germany is “certainly making the largest contribution” to NATO, Scholz said in an interview with the ARD broadcaster.

Speaking at the close of a summit of leaders from the Group of Seven rich democracies, Scholz said Germany was in the process of creating “the largest conventional army within the NATO framework in Europe”.

Days after Russia invaded Ukraine in February, Scholz announced a 100-billion-euro ($105-billion) fund to beef up Germany’s military defences and offset decades of chronic underfunding.

READ ALSO: Germany’s Bundestag approves €100 billion fund to beef up defences

He also promised to meet NATO’s target of spending two percent of GDP on defence, answering years of criticism from close allies that Berlin was failing to contribute enough to the alliance.

Russia’s invasion had led to a renewed conviction “that we should spend more money on defence”, Scholz said.

“We will spend an average of around 70 to 80 billion euros a year on defence over the next few years,” he said, meaning “Germany is the country that invests the most in this”.

Scholz’s announcement in February was seen as a major policy shift, upending Germany’s traditionally cautious approach to defence as a result of its post-war guilt.

Germany had steadily reduced the size of its army since the end of the Cold War from around 500,000 at the time of reunification in 1990 to just 200,000.

NATO allies are from Tuesday gathering in Madrid for a summit, where the United States is expected to announce new long-term military deployments across Europe.

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