In 2021, the federal government will earn billions in debt
As of: December 22nd, 2021, 4:46 p.m.
Because of the high costs of the pandemic, the federal government took on a record amount of new debt this year. The fact that Germany borrows money, at the same time flushes almost six billion in the state coffers.
This year, for the second time in a row, the German state took on a record amount of new debt in order to be able to finance the effects of the Corona crisis. In total, the federal government borrowed around 483 billion euros on the financial market. At the same time, he took in almost six billion euros with this borrowing. According to the news agency, that works Reuters from a reply from State Secretary for Finance Florian Toncar (FDP), which was written to a request from Bundestag member Christian Görke (left).
Because the debt was borrowed on very good terms: the German state has issued federal securities, the average yield of which, according to Toncar, was minus 0.56 percent. That means: buyers of federal bonds have to pay so-called negative interest. So you give the federal government more money for a government bond than you get back in the end. Thus, negative interest works in exactly the opposite way to the “normal” positive interest, where in the end the buyer of government bonds goes out of business with a plus and the federal government has interest costs.
Bunds are in demand
Despite the negative interest rates, the bonds of the German state are extremely popular, as they are considered stable and creditworthy – the creditworthiness of the Federal Republic is given the top rating of “AAA” by major rating agencies, which means that repayments are considered safe. The popularity is also evident from the fact that the auctions for federal bonds were 1.7 times oversubscribed this year. The federal government could easily have sold more bonds because the buyers would have been there. “Despite negative returns, German bonds go away like hotcakes,” said Görke: “Germany has many problems, but government financing is not one of them.”
Experts assume that little is likely to change at first: “The financing conditions for the federal government remain excellent,” said NordLB economist Bernd Kampen. “We expect negative returns in the coming year as well.” This is not least due to the fact that the European Central Bank (ECB) will not end its zero interest rate policy before 2023. Banks currently have to pay a negative interest rate of 0.5 percent at the ECB when they park money at the central bank.
Also in the coming year new debts in the billions
For the coming year, the finance agency responsible for debt management plans to issue EUR 410 billion. Given the high demand, this is likely to be achieved, because there is a huge market for trading in these papers, which is why federal securities for pension funds, asset managers and other investors enjoy almost cash status.
In addition, the ECB is acting on a large scale as a buyer of federal securities. That is additional demand, which in turn depresses returns.