In order to reduce borrowing costs, the federal and state governments have jointly issued bonds in the past. Financially weaker federal states benefited from Germany's top credit rating. But the Ministry rejects a new edition - because the costs are too high.
The Federal Ministry of Finance rejects the proposal from several federal states after joint borrowing in view of rising interest costs. A spokeswoman said there were no plans to continue or resume the federal-state bond instrument. She referred to an audit by the Federal Audit Office, according to which the 2013 and so far only federal-state bond issued was uneconomical on balance. "The savings made by the federal states could not compensate for the additional expenditure by the federal government." A reissue is therefore "uneconomical and not suitable for relieving the state finances," it said.
In view of rising borrowing costs, both Schleswig-Holstein's finance minister Monika Heinold and Berlin's finance senator Daniel Wesener are calling for the states to take out debt together with the federal government via so-called Deutschand bonds. "Especially with rising interest rates and the current financial challenges, federal-state bonds are a useful instrument for shouldering the credit burdens in our federal system at all levels," said Green Party Minister Heinold. "If federal states could take out loans on federal terms, that would increase their financial scope and lower interest costs for taxpayers," said Wesener.
Financially weaker federal states could borrow more cheaply through Germany bonds. The reason is the involvement of the federal government, which would make its excellent credit rating available to the weaker federal states, which would have to pay higher interest rates for loans they had taken out themselves. The creditworthiness of the federal government is given the coveted top grade "AAA" by all major rating agencies, which indicates an extremely low risk of default. For this security, investors are willing to lend their money at lower interest rates.
In June 2013 there was a first joint bond. In addition to the federal government, ten federal states participated with different shares in the issue of the fixed-income security with a term of seven years and a volume of three billion euros. However, several financially strong states - including Bavaria, Baden-Württemberg and Hesse - did not participate.
Because of the zero interest rate policy of the European Central Bank (ECB) for years, the German government was able to borrow extremely cheaply for a long time. At times, the federal government even earned money by taking on debt. However, because of the record inflation in the euro zone, the ECB has meanwhile increased its key interest rate to 2.0 percent. Next week it could even push it up to 2.5 percent. This also increases the interest costs for the state.
