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Germany plans to borrow more in 2016, to repay debt, refugee costs

BERLIN (Reuters) - Germany plans to borrow more money next year, to repay old debt and handle the cost of taking in a flood of refugees, the country’s debt agency said on Wednesday, though the government still plans to keep its budget balanced.

German Finance Minister Wolfgang Schaeuble addresses the European Banking Congress at the Old Opera house in Frankfurt, Germany November 20, 2015. REUTERS/Ralph Orlowski

Including inflation-linked debt, the agency plans to issue up to 214.5 billion euros ($234.43 billion) of debt in 2016 compared with 186.5 billion euros this year.

“The issuance plan is based on a balanced budget,” Tammo Diemer, managing director at the debt agency, said, adding the government would issue more debt because it would have to pay back more old debt than it repaid this year.

Asked whether the European Central Bank’s bond-buying program had had an impact on the issuance plans, Diemer said: “We don’t see any significant effects.”

Finance Minister Wolfgang Schaeuble intends to keep the federal budget balanced for the third year running in 2016, meaning no net new borrowing will be required.

Berlin still needs to tap capital markets because it cannot fully pay back old loans out of incoming revenues. In addition, this year’s budget surplus, more than six billion euros, will not be used to reduce overall debt of 1.1 trillion euros.

Instead, the government will use the money to pay the near-term costs of coping with refugees next year. “As a result, the gross capital requirement will be higher,” Diemer said.

Germany is shouldering much of the burden of Europe’s biggest refugee crisis since World War Two. More than one million asylum seekers are expected to arrive this year alone.

The DIW economic institute estimates that state spending on refugees will rise from roughly six billion euros this year to 15 billion euros in 2016 and 17 billion euros in 2017.

“This will have the effect of a massive stimulus package in the next two years,” DIW head Marcel Fratzscher said, adding transfers to migrants would bolster private consumption.

Debt issuance for 2016 is roughly in line with previous year’s level. In 2014, Berlin borrowed 212 billion euros after 257 billion euros in 2013. At the height of the global financial crisis in 2009, borrowing totaled a record 334 billion euros.

Diemer noted that the planned issuing volume for 2016 included a financial buffer and that the final sum may turn out to be lower at the end of the year, as it has in 2015.

After initially projecting roughly 200 billion euros of issuance for 2015, the government ended up borrowing 186.5 billion euros this year, after collecting more tax revenue than expected.

Reporting by Michael Nienaber; Editing by Paul Carrel, Larry King