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For Federal Finance Minister Olaf Scholz (SPD), things could hardly have gone better in getting into debt.
Since he took office in the spring of 2018, interest expenses have fallen year on year, although he has been taking out more and more loans.
The spending melted away.
In 2020, Scholz only had to raise 6.4 billion euros for debt servicing.
In 2018 it was 16.4 billion euros.
That was also because Scholz earned a lot of money with new debts thanks to the negative interest rates.
The special prizes in 2018, 2019 and 2020 add up to 23 billion euros, as figures from the Federal Ministry of Finance show.
In the past year alone, the high level of new debt and the skillful management of existing liabilities resulted in extraordinary profits of 13 billion euros - the so-called premium income was never higher within a year.
Compared to 2019, the interest rate effect doubled again.
Source: WORLD infographic
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Times will be much more uncomfortable for the next finance minister.
He will no longer be able to rely on a special profit in the amount seen - with higher inflation figures, interest rates rise again.
"The interest rate risk has increased since 2020 as a result of the pandemic and the associated economic effects," said the Federal Ministry of Finance in response to a request from the FDP parliamentary group on the change in direction for interest rates on federal bonds.
The leading economic research institutes expect an average inflation rate of 2.4 percent for the current year.
In 2020 it was still 0.5 percent.
Bond yields have been rising since the beginning of the year
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The countermovement has been going on since the beginning of the year.
The yields on ten-year government bonds have gone up from minus 0.6 percent to minus 0.2 percent - it's not far into positive territory, then the federal government will actually have to pay investors interest again if it lends money for ten years becomes.
That was last the case two years ago.
With even longer maturities, the returns are already back in positive territory.
This week, for the first time, the 15-year Bund crossed the zero line again.
Treasury officials were already responding to the upward turn spurred by higher inflation rates.
This is shown by a look at the supplementary budget for 2021, which was passed by the Bundestag on Friday.
Source: WORLD infographic
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This provides for a total of 60 billion euros more new debt, and the federal government is now allowing itself a margin of 240 billion euros for this year.
The main reason is expected additional expenditure due to the Corona crisis for health care and business aid.
However, rising interest expenses due to a significant drop in special income also play a role.
"The EUR 4.5 billion higher interest expenditure expected for 2021 is largely due to the lower assumed premium income," the ministry said.
For the current budget year, only special income of 4.5 billion euros is assumed instead of the originally assumed eight billion euros.
The total interest expenditure increases from 5.9 billion euros to 10.4 billion euros.
In the noughties of this century, the federal government's annual interest expenditure was around 40 billion euros.
"Corona debt mountain poses a high risk for the federal government"
The federal government is still a long way away from the interest burdens of the time.
Critics see the upwardly adjusted interest expenditure as a warning signal for the next legislative period.
“We can assume that interest rates will rise after the Corona crisis.
Then the federal government would have to plan a lot more money in the budget in order to be able to finance the interest on its own debts, ”says FDP finance politician Christian Dürr, referring to the additional 4.5 billion euros that were already set this year.
For these reasons, the FDP parliamentary group will reject the supplementary budget.
"The mountain of corona debt carries a high risk for the federal government," says Dürr.
The FDP is in favor of a return to a more moderate spending policy after the pandemic and is opposed to the “debt fantasies of the SPD and the Greens,” as Dürr calls it.
Sven-Christian Kindler, financial policy spokesman for the Greens, considers such fears of a crushing interest burden to be exaggerated.
"The decisive factor for the federal budget is the interest costs in relation to the total expenditure, and we are miles away from any problems," he says.
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As long as the interest rate level is still below the growth level, everything is fine.
For this year, the leading economic research institutes are assuming an increase in gross domestic product of 3.7 percent.
Right now the state has to go into debt.
The Greens want to set up a large investment fund amounting to 500 billion euros for the next ten years and to remove the debt brake.
Most recently, the high special revenues in particular contributed to the feeling that going into debt has no consequences.
The high additional income of 13 billion euros was due to a peculiarity in accounting, the German cameralistics.
Source: WORLD infographic
They arise in two different ways.
Variant one is the classic minus interest.
If the finance agency used to want to borrow money, it had to pay annual interest on the loan, the coupon - just like anyone who takes out a real estate loan, for example.
In times of negative interest rates, the federal government does not have to pay anything; it receives money from its creditors for lending it money.
The coupon should actually be negative.
However, since the federal government cannot collect interest from all of its creditors every year, investors have to pay more when buying the paper than they get back at the end of the term.
The second source of the extraordinary interest income is tapped by the fact that the finance agency not only issues new bonds, but also increases bonds that were first issued years ago.
These sometimes still have high positive coupons.
A cross-country skier from 2008, for example, has an annual coupon of 4.75 percent.
Due to the decline in interest rates in recent years, such papers are now in demand.
Anyone who buys this type of paper today pays 192 percent instead of 100 percent.
At the federal level, this is recorded as a premium.
The federal government posted a 92 percent profit.
The special income is nothing more than negative interest paid by investors to the federal government in one fell swoop or initially saved interest payments by the federal government to investors.
The Federal Audit Office has criticized this practice for years - even if it is correct in budgetary terms.
As a result, the federal government bears higher interest expenditure in the years after - i.e. the next finance minister.
It is difficult to predict how much interest expenditure will go up overall.
That depends primarily on how prices change.
Anyone who expects higher prices, i.e. lower purchasing power, in the future, wants to have higher interest rates on their money today.
Higher inflation rate is a temporary phenomenon
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Economist Achim Truger from the University of Duisburg-Essen considers the higher inflation rate this year to be a temporary phenomenon, which is mainly due to the fact that the temporary VAT reduction has expired and the new CO2 pricing is leading to higher energy costs.
“In 2022 the inflation rate is likely to decline again.
In the medium term, there is nothing to suggest a noticeable rise in inflation, ”says Truger, who is a member of the Advisory Council for assessing macroeconomic developments.
The slight increase in yields that can be observed does not fundamentally change the sustainability of German national debt.
Lars Feld, former chairman of the expert council and head of the Walter Eucken Institute at the University of Freiburg, is more skeptical.
"After the end of the pandemic, we will see even more inflationary dynamics because people will then spend the money that was last withheld," says Feld.
Then significantly higher interest rates are to be expected, and he does not want to commit himself to any order of magnitude.
If so, it will definitely show up in the federal budget.
Even if the next Federal Finance Minister manages to get by without new debts, he will have to take action on the capital market: Existing loans will expire and must be extended by issuing new shares.
According to the Ministry of Finance, government bonds with a volume of EUR 850 billion will mature up to and including 2025.
The refinancing of his successor will hardly be cheaper than Olaf Scholz.
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