Germany ‘to borrow over €45 billion’ in 2023 to combat energy crisis

Germany will have to take on more debt than expected in 2023 to combat an energy crisis that has left Europe's biggest economy facing "great economic uncertainty", Finance Minister Christian Lindner said Tuesday.

Germany 'to borrow over €45 billion' in 2023 to combat energy crisis
Christian Lindner (FDP) speaking in the Bundestag on Tuesday. Christian Lindner (FDP) speaking in the Bundestag on Tuesday. Photo: picture alliance/dpa | Michael Kappeler

The government now expects new net borrowing next year to climb to €45.6 billion, more than double the €17.2 billion initially estimated.The budget plan will be discussed in the Bundestag lower house of parliament this week and is set to be approved on Friday.

“We are in a time of great economic uncertainty,” Lindner told public broadcaster ARD.

Industrial powerhouse Germany, which was heavily reliant on Russian gas imports before Moscow’s invasion of Ukraine, has been hit hard by soaring energy prices and a cut in Russian deliveries.

The government expects the German economy to tip into recession next year and shrink by 0.4 percent.

Lindner nevertheless stressed that Germany would return to the constitutionally enshrined “debt brake” in 2023, which limits annual new borrowing to 0.35 percent of gross domestic product.

The government had lifted the debt brake at the start of the coronavirus pandemic in 2020 to cushion the blow from shutdowns.

READ ALSO: Debt-adverse Germany to take on new borrowings to soften pandemic blow

But reinstating the debt brake has been a priority for Lindner, a fiscal hawk from the pro-business FDP party who came into office last December.

To help steer Germany through the fallout from Russia’s war without upsetting Lindner’s commitment to the debt brake, the government has announced “special funds” considered separate from the regular federal budget.

One of them is €100 billion fund to modernise the German military, the other is a €200 billion support package to help shield households and businesses from higher energy costs.

READ ALSO: German households to receive relief for gas costs ‘starting in January’

Both will be financed by taking on new debt. Critics including opposition parties have decried the separate funds as a fiscal sleight of hand.

But Lindner on Tuesday defended his 2023 budget, which will total around €476 billion, as “solid” and said there “was no alternative”.

The government’s council of economic advisors suggested earlier this month that Germany should temporarily raise taxes on higher earners to help finance the new spending.

But Lindner again ruled out any tax hikes.

“That would be extremely risky from an economic point of view and would be to the detriment of jobs and investment,” he told ARD.

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Norway and Germany seek Nato-led cooperation for key undersea structures

Germany and Norway want to start a NATO-led alliance to protect critical underwater infrastructure, their leaders said on Wednesday, weeks after explosions hit two key gas pipelines in the fallout from the war in Ukraine.

Norway and Germany seek Nato-led cooperation for key undersea structures

 “We are in the process of asking the NATO Secretary General to set up a coordination office for the protection of underwater infrastructure,” German Chancellor Olaf Scholz told a press conference in Berlin.

“We take the protection of our critical infrastructure very seriously and nobody should believe that attacks will remain without consequences,” he said.

Norwegian Prime Minister Jonas Gahr Store said the alliance would be “an informal initiative to exchange between civilian and also military actors” with NATO providing “a centre, a coordination point”.

Underwater cables and pipelines were “arteries of the modern economy” and it was necessary to create “a coordinated joint effort to ensure security for this infrastructure”, he said.

Scholz said he and Store would propose the plan to NATO Secretary General Jens Stoltenberg, who is due in Berlin for a security conference. The Nord Stream 1 and 2 gas pipelines off the Danish island of Bornholm were targeted by two huge explosions at the end of September.

The pipelines, which connect Russia to Germany, had been at the centre of geopolitical tensions as Moscow cut gas supplies to Europe in suspected
retaliation to Western sanctions over the invasion of Ukraine.

Although they were not in operation when the leaks occurred, they both still contained gas which spewed up through the water and into the atmosphere.

Russia and Western countries, particularly the United States, have traded bitter barbs over who is responsible for the blasts.

Several European countries have since taken steps to increase security around critical infrastructure. 

The G7 interior ministers warned earlier this month at a meeting in Germany that the Nord Stream explosions had highlighted “the need to better protect our critical infrastructure”.

Norway has become Europe’s main gas supplier in the wake of the war in Ukraine, taking the place of Russia.

The Scandinavian country has a vast network of pipelines, stretching for almost 9,000 kilometres, linking it to the continent, which experts have said are at risk of sabotage.