Inflation will force the country to spend an additional 14 billion euros to pay off government loans
Servicing government loans in 2023 will cost Germany almost double what it currently spends due to rising inflation, German media group Redaktionsnetzwerk Deutschland (RND) reported on Friday, citing documents from the country’s Finance Ministry on next year’s budget.
According to the report, due to a miscalculation in previous governments’ inflation forecasts, interest payments on Germany’s public debt will rise from 16 billion euros ($16.09 billion) to almost 30 billion euros next year. , as the federal government has been issuing bonds that are tied to the rate of inflation for the last several years. The media outlet claims that Berlin underestimated the risk of inflation growth and as a result now faces the need to provide much larger sums to pay off these bonds.
“According to the draft budget documents for 2023, about 7.6 billion euros should be set aside for the repayment of so-called inflation-linked bonds in the coming year. This represents 3,000 million euros more than this year and almost 7,000 million euros more than last year, when inflation was still low.informa RND.
According to the German Debt Office, the amount of such indexed government loans is currently around €65 billion, which represents just under 5% of the country’s total public debt of €1.5 trillion. However, the participation of these loans in the payment of interest is very disproportionate and amounts to approximately 25%.
The report highlights that banks, insurance companies or funds that have granted loans to the German government will mainly benefit from the situation, since they will receive more money in interest payments. However, German taxpayers are unlikely to be satisfied as it is their money that will be spent paying the interest.
“Betting on infinitely low inflation rates when borrowing was a mistake that is now costing taxpayers dearly,”, said Dietmar Bartsch, leader of the left faction in the German parliament, commenting on the situation. He also demanded an investigation into the debt policies of previous governments.
Still, regardless of the high cost of inflation-linked bonds, Germany’s federal spending on its debt is likely to continue to grow in coming years, RND notes, because interest rates will also rise as Europe is trying to combat an economic crisis. . For example, the European Central Bank (ECB) is expected to introduce an interest rate hike later this month, for the first time in 11 years.