Germany plans higher borrowing to combat energy crisis

Germany will have to take on more debt than expected in 2023 to combat an energy crisis that has left Europe's biggest economy facing  "great economic uncertainty", Finance Minister Christian Lindner said Tuesday.

The government now expects new net borrowing next year to climb to 45.6 billion euros ($47 billion), more than double the 17.2 billion euros initially estimated.

The budget plan will be discussed in the Bundestag lower house of parliament this week and is set to be approved on Friday.

"We are in a time of great economic uncertainty," Lindner told public broadcaster ARD.

Industrial powerhouse Germany, which was heavily reliant on Russian gas imports before Moscow's invasion of Ukraine, has been hit hard by soaring energy prices and a cut in Russian deliveries.

The government expects the German economy to tip into recession next year and shrink by 0.4 percent.

Lindner nevertheless stressed that Germany would return to the constitutionally enshrined  "debt brake" in 2023, which limits annual new borrowing to 0.35 percent of gross domestic product.

The government had lifted the debt brake at the start of the coronavirus pandemic in 2020 to cushion the blow from shutdowns.

But reinstating the debt brake has been a priority for Lindner, a fiscal hawk from the pro-business FDP party who came into office last December.

To help steer Germany through the fallout from Russia's war without upsetting Lindner's commitment to the debt brake, the government has announced  "special funds" considered separate from the regular federal budget.

One of them is 100-billion-euro fund to modernise the German military, the other is a 200-billion-euro support package to help shield households and businesses from higher energy costs.

Both will be financed by taking on new debt. Critics including opposition parties have decried the separate funds as a fiscal sleight of hand.

But Lindner on Tuesday defended his 2023 budget, which will total around 476 billion euros, as  "solid" and said there  "was no alternative".

The government's council of economic advisors suggested earlier this month that Germany should temporarily raise taxes on higher earners to help finance the new spending.

But Lindner again ruled out any tax hikes.

"That would be extremely risky from an economic point of view and would be to the detriment of jobs and investment," he told ARD.