Germany to Sell More Debt in 2011 as Growth Slows, Budget Shows

Chancellor Angela Merkel’s government plans to sell more debt in 2011 than this year as the expansion of Europe’s biggest economy slows, the draft budget shows.

Germany will sell 320 billion euros ($411 billion) of bonds and bills next year, compared with 317 billion euros of debt foreseen for 2010, according to the 2011 financing plan, obtained by Bloomberg News. The government originally intended to sell 338 billion euros of debt this year, showing that the Finance Agency plans to slash debt sales in the final quarter.

The German economy grew 2.2 percent in the second quarter, the fastest pace since the country’s reunification two decades ago. Even so, investor confidence dropped more than forecast to a 16-month low in August, the Mannheim-based ZEW Center for European Economic Research said today, suggesting growth will slow from a record-breaking pace.

“The federal bond calendar from next year will reflect the government’s constitutional requirement to wind down spending,” Boris Knapp, the Frankfurt-based Finance Agency’s chief spokesman, said today in a phone interview.

The budget, which still has to go to parliament, will be voted on by December.

German government bonds returned 8.6 percent so far this year, according to indexes compiled by Bloomberg and the European Federation of Financial Analysts Societies. The securities gained as concern smaller European nations may struggle to finance their budget deficits stoked demand for the safest fixed-income assets. U.S. Treasuries handed investors 8.3 percent in the period.

Bond Calendar

The 2011 debt issuance includes 263 billion euros of bonds and 58 billion euros of bills, or securities that mature within 12 months. The government cut its issuance calendar in stages this year from a total of 343 billion euros to 317 billion euros. The agency will probably publish its fourth-quarter calendar in September.

Finance Minister Wolfgang Schaeuble has pledged to cut net new borrowing to 57.5 billion euros in 2011 to adhere to a national debt brake, enshrined in a constitutional amendment from last year, as well as European Union budget rules. Schaeuble expects borrowing to almost double to 65.2 billion euros this year from 34.1 billion euros in 2009.

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