Germany will increase its borrowing by almost 40 billion euros this year to mitigate the effects of the war in Ukraine, raising the net new debt of the year to almost 140 billion euros, according to three sources familiar with the matter cited by Bloomberg .
The adjustment was deemed necessary to fund a series of government measures to offset the economic impact of the war and rising energy prices, the sources said, while the budget plan is expected to be presented to the cabinet on Wednesday.
The proposal by Finance Minister Christian Lindner will then be sent to parliament for approval.
Following the outbreak of the pandemic, the German government broke its long-standing fiscal taboos and entered into unprecedented borrowing, creating a net new debt of 130 billion euros in 2020 and a record 215 billion euros in 2021.
The ruling coalition has suspended constitutional rules restricting new debt for three years to address the economic effects of the pandemic, but is committed to restoring them by 2023 – at least for now.
In addition, Chancellor Olaf Solz announced a new bill of 100 billion euros earlier this year to cover the huge increase in military spending and meet NATO’s military spending target of 2% of annual economic output.
Ministry of Foreign Affairs Lindner had clarified that the lending for the financing of the military fund will be extended in several years.
Total net new borrowing is likely to exceed 140 billion euros at the end of this year, depending on how much debt out of the 100 billion euros in the special fund will be committed in 2022.
Source: Capital
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