Business and Finance

The German government will borrow more money next year than ever before as a contracting economy hits tax revenue and inflates spending on unemployment benefits, a senior lawmaker from the ruling coalition said.

“Next year we’ll have the highest net and gross new borrowing in the history of the Federal Republic,” Steffen Kampeter, the Christian Democratic Union’s budget spokesman in parliament, said today in a Bloomberg Television interview in Berlin. Gross borrowing will be close to 340 billion euros ($479 billion) “if things go really badly,” he said.

Based on an assumption that the economy, Europe’s biggest, may shrink 3 percent next year, net new borrowing may amount to between 40 billion euros and 50 billion euros, Kampeter said. Loan commitments to Soffin, which administers Germany’s bank- rescue fund, may come on top of that, he said. That compares with the 18.5 billion euros set out in the 2009 budget.

Kampeter’s assessment is bad news for his party leader, Chancellor Angela Merkel, who made deficit reduction and a return to a balanced budget a priority. Merkel’s popularity has already slumped after international and domestic criticism over her unwillingness to spend more to mitigate what may become the worst recession since World War II in 2009, an election year.

Merkel acknowledged for the first time yesterday that the stimulus measures taken so far “are not enough,” and more steps will have to be taken in January. She indicated “a few billion” more would be spent on infrastructure such as schools.

‘Very Worrying’

“It’s very worrying, but not surprising,” David Keeble, head of fixed-income strategy in London at Calyon, the investment-banking unit of Credit Agricole SA, said of Kampeter’s borrowing prognosis. “Every government in the universe seems to be doing the same thing. My fear is that the market might have some indigestion trying to take down the bond supply, especially if policy response to the economic slowdown starts to work next year sam day payday loan.”

The 340 billion euros in gross borrowing includes “old capital-market commitments, commitments stemming from the federal budget, commitments stemming from the automatic stabilizers and commitments we made to supply Soffin with loans if needed,” Kampeter said.

Germany’s Finance Agency, which manages government borrowing and debt, will publish the 2009 gross borrowing plan tomorrow. Kampeter said the agency’s projection will probably be below 340 billion euros. It was 220 billion euros this year and 213 billion euros in 2007.

Public Debt ‘Limits’

“All in all, there’ll be a significant tapping of the capital market,” Kampeter said. “I’m concerned that we’re approaching the limits of public indebtedness. The government is soaking up liquidity and at the same time we’re talking about a credit crunch for the private sector.”

Finance Minister Peer Steinbrueck’s budget plan for next year assumes economic growth of 0.2 percent, a projection that’s out of line with more recent predictions by the country’s leading economic institutes. The Munich-based Ifo institute and Essen-based RWI, both of which advise the government, forecast the economy will shrink 2.2 percent and 2 percent respectively.

Based on Kampeter’s assessment, new borrowing will exceed spending on investment such as road-building, violating Germany’s constitution. That would force the government to declare that the economy is “out of balance” to avoid an infringement of the law — the first time Merkel’s government will have to resort to such measures. The economy was last out of balance between 2002 and 2004, when Gerhard Schroeder was chancellor.

The Economy Ministry is scheduled to publish its annual economic report and update its economic growth forecast on Jan. 28. The Rheinische Post newspaper reported that the declaration will be made then.

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