Germany’s government debt spending will double

Servicing government loans in 2023 will cost Germany almost double what it is currently spending due to rising inflation, according to German media group Redaktionsnetzwerk Deutschland (RND) said on Friday, citing documents from the country’s Treasury Ministry on next year’s budget.

According to the report, Germany’s interest payments on its national debt will rise from 16 billion euros ($16.09 billion) to almost 30 billion euros next year due to a miscalculation in previous governments’ inflation forecasts, as the federal government has issued bonds linked to past inflation rates years are coupled.

The news agency notes that Berlin has underestimated the risk of inflation growth and is therefore now faced with the need to allocate much larger sums to service these bonds.

“According to the documents for the draft budget for 2023, around 7.6 billion euros will have to be reserved for the repayment of so-called inflation-linked bonds in the coming year. That is 3 billion euros more than this year and almost 7 billion euros more than last year when inflation was still low,‘ reports RND.

According to the Federal Debt Office, the amount of such indexed government loans is currently around 65 billion euros, which is almost 5% of the country’s total government debt of 1.5 trillion euros. However, the share of these loans in the interest payments is disproportionately high and amounts to around 25%.

The report emphasizes that especially banks, insurance companies or funds that have granted loans to the federal government will benefit from the situation because they will receive more money in interest payments. However, German taxpayers are unlikely to be pleased as their money will be spent on paying off the interest.

“Banking on infinitely low inflation rates when borrowing was a mistake that is now becoming very costly for the taxpayer,Dietmar Bartsch, chairman of the left parliamentary group in the German Bundestag, commented on the situation. He also called for an investigation into the debt policies of previous governments.

Regardless of the high cost of inflation-linked bonds, however, federal spending on its debt is likely to continue to rise in the coming years, notes RND, as interest rates will also rise as Europe tries to combat an economic crisis. For example, the European Central Bank (ECB) is expected to start raising interest rates later this month for the first time in 11 years.