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‘Doing nothing would be more expensive’: Germany to take on debt again in 2021

Germany plans to take on €96.2 billion in new debt in 2021, shattering its cherished no-deficit rule for a second year running to combat the pandemic's economic fallout, Finance Ministry sources said Friday.

'Doing nothing would be more expensive': Germany to take on debt again in 2021
Photo: DPA

The figure will be formally announced on Wednesday when Finance Minister Olaf Scholz presents next year's federal budget.

Berlin already intends to borrow around €218 billion this year to help pay for massive stimulus and rescue measures aimed at steering Europe's top economy through the Covid-19 crisis.

A Finance Ministry source told news agency DPA: “Doing nothing would be much more expensive.”

The unprecedented spending has forced Chancellor Angela Merkel's government to abandon its years-long habit of running a “black zero” balanced budget, and suspend a constitutionally enshrined “debt brake”.

Introduced at the height of the financial crisis in 2009, the “debt brake” bans Berlin from taking on more than 0.35 percent of gross domestic product (GDP) in new debt in any one year.

Scholz's 2021 budget would see total government debt as a percentage of GDP climb to 75.25 percent, compared with just under 60 percent in 2019.

READ ALSO: Germany to borrow €218.5 billion to fund coronavirus stimulus

Germany expects to return to the “debt brake” and its usual fiscal rigour in 2022, the ministry sources said.

The government is also bracing for a massive drop in tax revenues this year and next.

The country now expects to take in €264.4 billion in federal tax revenues in 2020, down from Scholz's earlier prediction of €275 billion, and well below the €329 billion collected in 2019.

Tax revenues are not expected to reach their pre-crisis level until 2024, the sources said.

Support for people and businesses

Merkel's ruling coalition has pledged more than a trillion euros in aid to shield German companies and workers from the virus fallout, including through loans, grants and subsidised shorter-hours programmes.

The government has also rolled out a €130-billion stimulus programme to kickstart the economic recovery, including major investments in the health sector.

The German economy is predicted to contract by 5.8 percent in 2020, the deepest slump in its post-war history, before rebounding by 4.4 percent in 2021.

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POLITICS

Civil servants ‘getting burnout’ over energy crisis, says German minister

Public sector workers trying to tackle Germany's ongoing energy crisis are suffering from illness and burnout, Economics Minister Robert Habeck has said.

Civil servants 'getting burnout' over energy crisis, says German minister

The Russian invasion of Ukraine has unleashed economic turmoil in Europe, placing Germany’s new coalition government under pressure to firefight multiple crises.

Perhaps the largest of these is the energy crisis, which has prompted fears of gas shortages in the winter months and seen prices for fossil fuels soar for both households and businesses.

According to Economics and Climate Minister Robert Habeck, the staff at his ministry – who are charged with tackling the energy crisis – are struggling to cope with the extraordinary pressure that they have been under in recent months. 

“People, at some point they have to sleep and eat too,” the Green politician said at a congress of the Federation of German Industries (BDI) in Berlin. “It’s not bullshit I’m talking now: people get sick. They have burnout, they get tinnitus. They can’t take it anymore.”

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In the last nine months alone, the Economics Ministry has produced 20 laws and 28 ordinances, Habeck revealed. He said this was likely more than the ministry produced over the entirety of the previous four-year legislature. 

Highlighting the strain that his staff were under, Habeck explained that it was always the same people in charge in drafting new laws in the battle to secure the energy supply.

To say that the Tourism Ministry could help restructure the electricity market would be like “telling the artist who made the sculptures that he can be the president of the Federation of German Industries,” the Green politician added. 

Batting off criticism that the ministry had occasionally been slow to act, Habeck said: “Of course you could say, ‘why didn’t you do the regulation a week earlier’. But it’s not because people are sleeping, it’s because there is a limit to their physical capacity.”

Gas levy criticism 

Germany has had to cope with an ever intensifying energy emergency over the past few months, culminating in Russia reducing supplies and then turning off gas deliveries via the Nord Stream 1 pipeline entirely in September. 

Most recently, the government took steps to nationalise its largest gas supplier – Uniper – in a move to prevent the collapse of the country’s energy infrastructure. Uniper has suffered losses of billions of euros this year due to the costs involved in replacing cheap Russian gas supplies at short notice. 

Habeck, who has appeared increasingly world-weary and exhausted in recent months, has faced sharp criticism for a number of decisions made during the crisis. 

Most controversially, his decision to implement a gas levy to bail out major energy companies has been met with consternation from both the opposition and the Greens’ coalition partners, the Social Democrats (SPD). 

On Friday, SPD leader Lars Klingbeil reiterated concerns about the fairness of the gas levy at a time when many are struggling to pay their energy bills.

SPD leader Lars Klingbeil

SPD leader Lars Klingbeil speaks to the press during the ARD Summer Interview in Berlin. Photo: picture alliance/dpa | Fabian Sommer

In a situation where the government is facing multiple decisions in a short space of time, ministers also require the strength to “reconsider and correct their path”, Klingbeil told RND.

“(The gas levy) is about supporting the gas supply infrastructure,” he added. “However, this must be done fairly.”

In spite of the nationalisation of Uniper, Habeck has confirmed that the gas levy – which adds 2.4 cents per kilowatt hour of energy onto gas bills – will still be introduced on October 1st.

However, on Thursday he announced that there would be changes to Energy Security Act to ensure that only companies who needed the bailout would benefit from the levy.

According to the ministry, the changes are set to be passed by the cabinet on September 28th.

READ ALSO: Germany to push ahead with gas levy plans

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