Germany’s new debt projection for 2023 skyrockets under the strain of the energy crisis

The energy crisis will force Germany to take on well over twice as much new debt in the following year as was previously expected, officials said, burdening it with unplanned interest payments totaling billions of euros. In comparison to the 17.2 billion euros that were projected for new debt in the government’s summer draft, the budget anticipates 45.61 billion euros ($46.62 billion) in new debt in the year 2023.

The new figure is still a significant reduction from the 139.9 billion euros of new debt that were budgeted for this year, and the officials said that it would allow Germany to comply with its constitutionally enshrined debt brake for the first time since 2019, which limits the fiscal deficit to 0.35% of gross domestic product.

During this time of widespread COVID-19 infection, the brake has been temporarily disengaged. However, according to the Minister of Finance Christian Lindner, the calculation did not take into account money allocated for the armed forces or the relief package for the energy crisis because these are “crisis-related expenses that we separate from our regular federal budget.” On November 25th, the Bundestag will vote on whether or not to approve the budget for 2023, which calls for a total expenditure of 476.3 billion euros.

Both a special fund for the army and an economic stabilization program to finance, among other things, a planned gas and electricity price brake are not part of the regular budget, but the lower parliamentary house has already approved new debt of up to 300 billion euros for both of these initiatives. The lower parliamentary house also approved the new debt. According to a document from the parliamentary budget committee that was seen by Reuters, the increasing cost of borrowing combined with high inflation will result in approximately 10 billion euros more in interest payments for the government in 2023 than was previously anticipated.

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The burden of interest payments would increase to approximately 40 billion euros, up from the government’s estimated 29.6 billion. This would be a tenfold increase from the total expenditure in 2021 of 3.9 billion euros. In the past, such estimates of interest have frequently been on the high side of the spectrum. There is a possibility that interest rates will go up even further in the future. Lindner went on to say that because of this, “we’ve taken precautions so that we don’t end up being caught off guard by the capital markets.”

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