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Top marks for Germany from US ratings agency

The international credit rating agency Fitch on Wednesday affirmed Germany's top-notch triple-A (AAA) debt rating and said the outlook was stable.

Top marks for Germany from US ratings agency
Photo: DPA

“The affirmation reflects Germany’s longstanding credit strengths and robust economic performance over the past two years,” Fitch said in a statement.

“Against the background of fragile global recovery and the intensification of the eurozone crisis, Germany has recorded strong GDP (gross domestic product) growth and a declining trend in unemployment, partly as a result of previous structural reforms.”

Fitch analyst Gergely Kiss noted that Germany was the only major advanced economy which had lower unemployment rate in the first half of 2012 than it had in 2007.

German GDP had grown by a cumulative 5.8 percent since the beginning of 2010, compared to 2.3 percent for the eurozone.

Monetary conditions set for the entire eurozone by the European Central Bank were “accommodative for Germany given the strong cyclical position of its economy. As a consequence of safe-haven capital inflows, yields are also at extremely low levels,” Kiss said.

Nevertheless, Germany faces risks, the analyst warned. “A significantly deeper recession of its large eurozone trading partners could also push Germany into recession with negative repercussions for the fiscal stance as well,” he wrote.

Furthermore, additional sizeable contributions to eurozone bail-out funds “could push German debt level above 90 percent of GDP, close to the upper limit Fitch generally considers consistent with a ‘AAA’ rating.

Materialisation of these risks would put downward pressure on the rating,” Kiss said.

At the end of July, another rating agency, Moody’s, took the first step toward stripping Germany of its coveted AAA credit rating and cutting the outlook for Europe’s largest and most pivotal economy to “negative.”

AFP/jcw

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ECONOMY

German cabinet agrees record levels of new debt for 2021

The German government agreed Wednesday to take on record borrowing this year to weather the economic blow of the coronavirus pandemic.

German cabinet agrees record levels of new debt for 2021
Finance Minister Olaf Scholz. credit: dpa | Kay Nietfeld

In budget adjustments signed off by Chancellor Angela Merkel’s cabinet, Europe’s largest economy will borrow a total €240.2 billion in 2021, a third more than initially planned.

The adjusted budget, which will see Berlin break its taboo on new debt for the third year in a row, still has to be approved by parliament.

“We have decided to suspend the debt brake once again, and I think that’s justified,” Merkel told the Bundestag lower house, adding that the budget was “measured” despite “more insecurity” than usual.

“We are taking the right measures to manage the economic and financial effects of the pandemic,” added Finance Minister Olaf Scholz.

After maintaining a budget surplus for the last decade, the economic slump caused by the pandemic has forced Berlin to take on €370 billion in new debt in 2020 and 2021, with an extra €85.1 billion planned for 2022.

With the country facing a dangerous third wave and shutdown measures extended into April, Germany’s recovery has proved slower than expected this year.

Having originally planned to halt borrowing in 2022, the government is now aiming to return to its golden rule of fiscal discipline a year later, with only €8.3 billion of new debt in 2023.

The so-called “debt brake” is a rule enshrined in the constitution which forbids the government from borrowing more than 0.35 percent of gross domestic product (GDP) in a year.

READ ALSO: Merkel admits Easter coronavirus shutdown plan her ‘mistake alone’

Germany smashed the taboo in 2020 and 2021 as it scrambled to shield businesses and workers from the economic hit of the coronavirus.

The state has already paid out more than 114 billion euros of financial support to businesses since the beginning of the pandemic in the form of guaranteed loans, direct aid and shorter-hours work schemes.

Yet according to a report published by the German Economic Institute on Wednesday, the crisis has still cost the German economy 250 billion euros so far.

Extended restrictions

Hopes of a recovery this year have been dashed with entire sectors of the economy idled for months and the government revising down its 2021 growth forecast to three percent in January.

As a third wave of the pandemic tears through Europe, Germany extended shutdown measures by another several weeks at a marathon meeting between Merkel and state premiers on Monday.

Though plans for a strict five-day lockdown over Easter were scrapped Wednesday, businesses such as non-essential shops, leisure facilities and cultural venues will still remain largely closed until at least April 18.

In a report published Monday, the Bundesbank central bank predicted that restrictions would see economic output “contract markedly” in the first quarter of 2021.

The measures have also been met with growing frustration from business organisations, with the German Commerce Association warning that 120,000 shops could be forced to close if the measures continue to drag on.

The issue of taking on new debt, meanwhile, has also sparked heated political debate ahead of a September general election.

In January, Merkel’s chief of staff Helge Braun caused a major ruckus within his own CDU party when he suggested that the rule on fiscal discipline should be lifted for several years to come.

SEE ALSO: ‘We have finances well under control’: Germany takes on less debt than expected in 2020

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