On Wednesday, April 27, the German government approved a budget adjustment green-lighting an additional 39.2 billion euros ($41.24 billion) in borrowing as a means to mitigate the economic repercussions caused by the war in Ukraine.
According to people familiar with the matter, the borrowing will push the country’s net debt to almost 140 billion euros, amidst plans by the German government to reinforce its military capabilities.
The borrowing of 39.2 billion euros is necessary to fund “government measures” aimed to compensate for the economic fallout of soaring gas and oil prices which resulted from Russia’s invasion of Ukraine, Bloomberg wrote, citing several sources familiar with the plan.
With the amount of money borrowed, it brings Germany’s net debt in 2022 to 138.9 billion euros ($146.49 billion).
Previously, in 2020, Germany borrowed around 130 billion euros and in 2021 the country borrowed around 215 billion euros in an attempt to provide fiscal support for its economy as the COVID-19 pandemic raged on.
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Considering the Ukraine crisis, German Finance Minister Christian Lindner said he was left with “no choice” but to continue the extra spending, adding that the borrowing will “be spread over several years.”
The new debt is planned to relieve taxes on households and public transport commuters, in addition to providing fossil fuel subsidies for motorists. The estimated cost of the measures are around 14 to 16 billion euros.
According to the German news outlet, The Local, in early April, the government planned for a “support packet” worth five billion euros to combat soaring energy costs. Households will receive a 300-euro allowance to help them tackle their bills, in addition to a “one-off lump sum.”
Drivers will also be given a cut in their energy taxes on petrol, while users of public transportation will be able to use a ticket that costs nine euros per month. Around 5 billion euros will be used for companies that are struggling with the increase in energy prices.
The German government claims that it is still committed to restoring the constitutional limits on debt in 2023.
Germany has also committed to providing humanitarian aid for the war-torn nation of Ukraine, pledging to give one billion euros worth of military aid. Russia’s “special military operation” on Ukraine has to date caused an estimated $60 billion worth of damage to Ukraine’s infrastructure.
On Friday, April 22, an additional 37 million euros ($39.02 million) was approved to be delivered to Ukraine to assist in the reparation of Ukraine’s infrastructure. Some 22.5 million euros are earmarked to restore the country’s power grid and another 12.4 million euros will be used to rebuild housing. Two million euros will be used to provide medical supplies to the country.
However, the government is torn after it was decided that it will back out from plans to send heavy weapons, including 100 Marder armored personnel carriers and several Leopard tanks, to Kyiv.
Additionally, German Chancellor Olaf Schulz announced that 100 billion euros are planned to be spent to reach the North Atlantic Treaty Organization’s (NATO) “military spending goal of [two percent] of economic output per year.”
In all, 26.3 billion euros from the new debt will be used for spending, while 12.9 billion euros will be used to address problems posed by taxes and weakened businesses.
Should there be more debt from this plan, the overall net new borrowing could surpass 140 billion euros by the end of 2022. The budget deficit will expand to 3.75 percent of its gross domestic product in 2022 from 3.7 percent last year.
Officials anticipate that public-sector debt will drop to 66.75 percent of GDP.