Germany to draw up $10.6-billion flood damage fund

AP News
Posted: Jun 13, 2013 12:21 PM
Germany to draw up $10.6-billion flood damage fund

BERLIN (AP) — Germany will create a fund of up to 8 billion euros ($10.6 billion) to pay for the damage caused by recent flooding, Chancellor Angela Merkel said Thursday.

The country, which has Europe's biggest economy, won't raise taxes to cover the costs and will raise borrowing, Merkel said after meeting Germany's 16 state governors.

The cost of the fund, meant to finance long-term rebuilding, will be split equally between the federal government and the states; details of financing have yet to be finalized but Merkel said issuing government bonds is one possibility.

The Elbe, the Danube and other rivers overflowed their banks following persistent heavy rain, causing extensive damage over the past two weeks in southern and northeastern Germany. The water is now slowly receding in most areas.

Fitch Ratings earlier this week estimated that the cost of damage in Germany would total about 12 billion euros, and that insurers would face claims of up to 3 billion euros.

Merkel stressed that "we don't yet know the concrete scale of the damage," but officials named a "generous" figure of up to 8 billion euros as they launched a drive to pass legislation by early July.

Some of the same areas were hit by flooding in 2002. Officials at the time drew up an emergency fund of up to 7 billion euros; not all of that money was eventually used.

The flooding does not appear likely to throw off course the German economy, which has been doing better than most in Europe and was expected to accelerate in the current quarter after growing by only 0.1 percent in the January-March period.

Carsten Brzeski, an economist at ING in Brussels, noted that flooding in Germany hasn't had major economic effects in the past, in part because it tends to hit rural rather than major industrial regions.

"All in all, as in the past, the current flood will not come without costs and individual tragedies," he said. But "the growth path of the total economy ... should hardly be affected."

The Czech Republic, Austria, Slovakia and Hungary also have been hit by this month's floods.