Billions in damage – federal government caught cold by inflation
High energy prices threaten Germany’s prosperity
Inflation remains high at 7.6 percent. The prices will probably not go down again. There is growing concern that lower-income households will not be able to withstand the heavy economic burden.
Because the risk of inflation was underestimated, the German state has to pay several billion euros in additional interest. In the past, the Treasury had chosen bond models that are now proving unfavourable.
Dhe finance ministers of the previous Ampel governments, the current chancellor Olaf Scholz (SPD) and the CDU politician Wolfgang Schäuble, have speculated massively when it came to borrowing for the federal government, for which taxpayers now have to pay billions. This emerges from internal documents of the Federal Ministry of Finance for the 2023 budget, which are available to the editorial network Germany (RND/Friday).
According to this, the expenditure on interest in the coming year must increase so much from 16 to almost 30 billion euros, mainly because the federal government in recent years bonds has issued, which are linked to the inflation rate. Because the risk that inflation could rise significantly was underestimated, unexpectedly large sums of billions are now needed to service these government bonds.
According to the documents for the draft budget for 2023, around 7.6 billion euros must be reserved for the repayment of so-called inflation-linked bonds in the coming year. That is three billion euros more than in the current year and almost seven billion euros more than in 2021, when inflation was still low. In previous years, only amounts in the region of one billion euros were needed. It is required by law that the amounts dependent on the current rate of inflation are transferred annually to a special fund, from which the bond is then repaid at the end of the term.
Large share of interest expenses
The sharp increase in costs is causing a blatant disproportion in debt service overall: According to the Federal Debt Agency, there are currently inflation-indexed federal bonds worth around 65 billion euros. This corresponds to a share of almost five percent of the federal government’s total debt of around 1.5 trillion euros. However, these bonds now account for a disproportionate share of 25 percent of total interest payments.
Left parliamentary group leader Dietmar Bartsch called for detailed information about the debt management of the previous governments. “Betting on forever low inflation rates when taking out debt was a mistake that is now becoming really expensive for taxpayers,” he told RND. “It must be made transparent which finance minister issued these toxic papers and for what reasons,” demanded the left-wing politician.