Germany agrees financing of 8 billion euro flood aid fund

BERLIN Wed Jun 19, 2013 11:11am EDT

German Finance Minister Wolfgang Schaeuble waits for the start of the hearing at the Constitutional Court in Karlsruhe, June 11, 2013. REUTERS/Uli Deck/Pool

German Finance Minister Wolfgang Schaeuble waits for the start of the hearing at the Constitutional Court in Karlsruhe, June 11, 2013.

Credit: Reuters/Uli Deck/Pool

BERLIN (Reuters) - Germany has agreed the financing of an 8-billion euro fund to help repair damage caused by the worst flooding in a decade, with both the federal government and states footing the bill, the finance ministry said on Wednesday.

The federal government at the outset will itself raise the full amount for the so-called "reconstruction aid" fund because of initial disagreement with the states on how the 16 regions would contribute their share of the cost.

According to the ministry, the states and federal governments agreed on Wednesday that states would make their contribution through debt retirement and interest payments over 20 years.

"The public's uncertainty is over - now we can make the funds available for the victims of the flood disaster," Finance Minister Wolfgang Schaeuble said in a statement.

The 16 states had pushed to use a federal fund, wanting to benefit from the much lower financing costs of the federal government. They had also disagreed among each other about sharing the costs, with some which had invested in flood protection already wanting discounts.

Financing the fund could raise Germany's net new borrowing this year by up to 8 billion euros ($10.7 billion) this year, to be agreed in a supplementary budget.

That budget is expected to be passed in the Bundestag lower house of parliament next week. Germany had previously calculated to have net new borrowing this year of 17.1 billion euros.

Out of the 8 billion euros, the federal government will finance 1.5 billion on its own to repair federal infrastructure, such as motorways, leaving roughly 6.5 billion to be split 50-50 between the federal government and the states.

The worst floods in a decade swept through towns and the countryside in southern and eastern Germany this month, forcing thousands from their homes and bringing factory production to a standstill.

($1 = 0.7467 euros)

(Reporting by Matthias Sobolewski and Gernot Heller; writing by Annika Breidthardt; editing by Stephen Nisbet)

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