Germany Cuts Bond Sales Even as Merkel Spends on Refugees

  • `Big European challenge' cited by Merkel's government
  • Fourth-quarter debt issuance trimmed by 6 billion euros

Germany pared bond issuance for the second time this year, signaling that Chancellor Angela Merkel has leeway for emergency spending on the refugee crisis.

As Merkel’s Cabinet backed extra funding of at least 6.7 billion euros ($7.5 billion) to help as many as 1 million asylum seekers forecast to arrive this year, the government said Tuesday it’s reducing 2015 debt sales by 11 billion euros. Fourth-quarter issuance will comprise 28 billion euros in bonds and 2 billion euros in bills, 6 billion euros less than previewed in December, the Federal Finance Agency said in a statement.

Low interest rates, the lowest unemployment since Germany’s 1990 reunification and tax revenue exceeding forecasts are allowing Merkel to shoulder extra costs by tapping this year’s cash flow. Finance Minister Wolfgang Schaeuble plans to shift 5 billion euros of this year’s budget surplus to 2016 to aid refugees, while defending Merkel’s pledge to keep the budget of Europe’s biggest economy balanced, Steffen Seibert, Merkel’s chief spokesman, said in Berlin. Her governing coalition plans to introduce the measure in parliament this week.

“This is a big European challenge, perhaps the biggest in decades,” Seibert told reporters. Based on the government’s forecast for the number of arriving refugees, a balanced budget remains the goal for 2016, Schaeuble’s spokesman Martin Jaeger said.

Debt Reduction

The yield on German 10-year bonds declined 1 basis point to 0.595 percent at 1:30 p.m. Berlin time after declining to 0.57 percent, the lowest since Aug. 24, earlier Tuesday.

Germany will probably end up spending about an extra 10 billion euros this year to care for a wave of people fleeing war and poverty from regions such as Syria, Afghanistan and the western Balkans, according to the Munich-based Ifo economic institute.

The finance agency said it cut 1 billion euros in two-year note issuance, and canceled 3 billion euros in 12-month Treasury discount paper issuance and 2 billion euros in 6-month Bubills.

Germany reduced federal debt by 1.1 percent to 1.3 trillion euros in the second quarter from a year earlier, the Federal Statistics Office said Sept. 22. Germany’s debt at all levels of government fell 0.9 percent, or 19 billion euros, to 2 trillion euros.

“With the reduction in the planned issue volume in 2015, the Federal Finance Agency is taking account of the favorable development of the federal budget” and special funds used to augment federal spending, agency head Tammo Diemer said in an e-mailed statement.

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