The growth in interest payments on German government debt was influenced by several factors, including an increase in the yields of government bonds of Germany and the growth of the country’s public debt itself. This was told to Izvestia on February 27 by Olga Belenkaya, head of the macroeconomic analysis department of FG Finam.
“First of all, a significant increase in the yields of German government bonds has affected. So, now the yield of two-year Bundes has exceeded 3%, and at the beginning of 2021 it was negative (-0.7%). For ten-year German government bonds, the situation is similar: now the yield there exceeds 2.5%, which is close to the highs for more than 10 years, and at the beginning of 2021 it was also negative, ”the analyst clarified.
As the economist explained, in turn, the growth in government bond yields is associated with the tightening of the monetary policy of the European Central Bank (ECB) and other major world central banks in order to cope with record inflation.
“The leadership of the ECB is in favor of a further increase in ECB rates, in addition, from March, the planned reduction of government bonds on the balance sheet of the ECB, acquired earlier as part of quantitative easing, will begin. This may lead to a further increase in yields on government bonds (that is, the cost of servicing government debt),” Belenkaya added.
The second reason, the economist called the growth of the public debt of Germany.
“As Bloomberg reported last December, the German federal government plans to issue a record amount of debt in 2023 to help finance relief for households and companies hit by the energy crisis. According to the plan of the German financial agency, it was assumed that the issuance of debt obligations will grow to about €539 billion in 2023 from €449 billion in 2022, ”the expert said.
According to her, the last time a significant increase in the country’s public debt was observed in 2020-2021, when the government spent funds free of charge to compensate for the consequences of the coronavirus pandemic.
Belenkaya cited data from the Federal Statistical Bureau of Germany (Destatis), according to which, in the first nine months of 2022, the total expenditures of the German budget amounted to €1.33 trillion, and revenues to €1.26 trillion.
“That is, even with an increase in interest expenses up to €40 billion (apparently, we are talking about annual expenses), they can amount to 2–3% of annual budget revenues, which is far from critical levels,” the economist said.
At the same time, she noted that German Finance Minister Christian Lindner is right when he says that these are funds that the country “in the future will not be enough for something else – for education, digitalization, investment in climate protection.”
“He spoke in favor of the “debt brake” mechanism, that is, a legislative ban on the government from reducing the budget to a deficit,” Belenkaya said.
Earlier in the day, Lindner tweeted that interest payments on German government debt had risen 10-fold since 2021, from €4bn to €40bn.
As follows from the Destatis message published on the official website On December 21, 2022, Germany’s national debt exceeded €2.3 trillion.
