Bundesbank pauses payouts to German government – POLITICO

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FRANKFURT — The Bundesbank will make no annual payout to the German government for the first time since 1979, citing risks from the European Central Bank’s large-scale asset purchases.

Extra cash from the Bundesbank will be sorely missed in the federal budget, which went heavily into the red in 2020 for the first time in nearly a decade.

Last year, the Bundesbank transferred its 2019 profit of €5.9 billion to the German government. But instead of declaring profits for 2020, the German central bank said on Wednesday it had decided to boost risk provisions against potential losses by €2.4 billion to €18.8 billion.

The Bundesbank said that interest rate risk and default risk have risen in the assets it has purchased as a part of the ECB’s asset purchase programs. It warned that the government should not expect much more money flowing into its coffers from 2021 either.

“This step only goes some of the way towards covering last year’s increase in risk,” Bundesbank President Jens Weidmann said as the central bank released its annual report for last year. “We are therefore expecting another top-up of the provisions for general risks for the current financial year.”

The Bundesbank also said that the German economy is expected to decline markedly in the first quarter of this year, but would start the recovery as soon as coronavirus lockdown measures are lifted.

Weidmann said the German economy is expected to return to its pre-coronavirus size around the beginning of 2022. 

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