Germany Borrows Another 40 Billion Euros To Cushion Fallout From War In Ukraine

Famously debt-averse Germany has decided that it will need to borrow nearly 40 billion euros ($43 billion) to cushion its economy from the blowback caused by the war in Ukraine.

They plan to use the money to blunt the economic and financial impact of the war (ie on more handouts for the country’s citizens), which has led to surging energy prices that must be shouldered by German companies and consumers, according to Bloomberg, who cited several sources close to the German government.

Once finalized, the proposal from Finance Minister Christian Lindner will then be sent to the Bundestag, Germany’s parliament, for approval.

Since the start of the coronavirus pandemic, the German government has ended its longstanding opposition to debt and unleashed an unprecedented borrowing binge, with net new debt of €130 billion euros in 2020 and a record €215 billion euros in 2021.

Source: Bloomberg

The ruling coalition has suspended constitutional limits on new borrowing for three consecutive years to deal with the economic fallout from the pandemic.

In addition to this latest tranche of money, Chancellor Olaf Scholz has also announced a special fund worth €100 billion to pay for a massive increase in Germany’s military spending, which will also help it meet NATO’s military spending goal of 2% of economic output per year. Lindner has said that borrowing to finance the fund will be spread over several years, which means borrowing for 2022 will likely exceed €140 billion, depending on how much money from the fund will be attributed to this fiscal year.