Germany's profit from public debt may reach 600 million euros by 2029: document

BERLIN: Germany will make a profit of around 600 million euros ($728 million) with its overall public debt by 2029 if the European Central Bank keeps interest rates unchanged at historically low levels, a finance ministry document showed on Wednesday.

The calculations are likely to fuel a debate in Germany about when Berlin should end massive deficit-spending triggered by the COVID-19 pandemic, and return to the fiscal rules of a debt brake that parliament suspended for 2020 and 2021.

Finance Minister Olaf Scholz is expected to present the draft budget for 2022 next month and officials have hinted it could be difficult to keep new borrowing below the ceiling of 0.35% of gross domestic product as required by the rules.

Officials have made calculations for the long-term outlook for debt servicing based on two scenarios.

In the first, euro zone interest rates remain unchanged over the next 20 years, which would lift the federal government's profit from debt servicing to 3.1 billions euros by 2039, the document showed.

In the second, the finance ministry assumes interest rates will rise by 0.1 percentage points every year. That would mean the federal government would face debt service costs of 7.5 billion euros in 2029, rising to 13.6 billion euros by 2039, the document showed.

Deputy Finance Minister Bettina Hagedorn said the calculations were only estimates and fraught with uncertainty due to the long time period.

Germany last year earned more than 7 billion euros from issuing new bonds as negative interest rates pushed down Berlin's overall debt servicing costs to record lows.

The ECB's loose monetary policy and Berlin's international reputation for fiscal reliability has led to negative interest rates for German debt, even over longer maturities.