SHARE
COPY LINK

POLITICS

‘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.

READ ALSO:

Member comments

Log in here to leave a comment.
Become a Member to leave a comment.

ENERGY

Should tenants in Germany be shielded from energy price hikes?

Gas prices have more than tripled in the past year, prompting tenants' rights advocates to call for more social support and a cap on energy costs.

Should tenants in Germany be shielded from energy price hikes?

The German’s Tenants’ Association is calling on the government to put together a new energy relief package to help renters deal with spiralling energy costs.

Gas has become an increasing scarce resource in Germany, with the Economics Ministry raising the alert level recently after Russia docked supplies by 60 percent.

The continued supply issues have caused prices to skyrocket. According to the German import prices published on Thursday, natural gas was three times as expensive in May 2022 as it was in May a year ago.

In light of the exploding prices, the German Tenants’ Association is putting the government under pressure to offer greater relief for renters.

READ ALSO: 

Proposals on the table include a moratorium on terminating tenancy agreements and a permanent heating cost subsidy for all low-income households.

The Tenants’ Association has argued that nobody should face eviction for being unable to cope with soaring bills and is urging the government to adjust housing benefits in line with the higher prices. 

Gas price cap

Renters’ advocates have also joined a chorus of people advocating for a cap on consumer gas prices to prevent costs from rising indefinitely.

Recently, Frank Bsirske, a member of the parliamentary Green Party and former head of the trade union Verdi, spoke out in favour of capping prices. Bavaria’s economics minister and Lower Saxony’s energy minister have also advocated for a gas price cap in the past. 

According to the tenants’ association, the vast majority of tenants use gas for heating and are directly affected by recent price increases.

At the G7 summit in Bavaria this week, leaders of the developed nations discussed plans for a coordinated cut in oil prices to prevent Russia from reaping the rewards of the energy crisis. 

In an initiative spearheaded by the US, the group of rich nations agreed to task ministers will developing a proposal that would see consumer countries refusing to pay more than a set price for oil imports from Russia.

READ ALSO: Germany and G7 to ‘develop a price cap’ on Russian oil

A gas price cap would likely be carried out on a more national level, with the government regulating how much of their costs energy companies can pass onto consumers. 

Strict contract laws preventing sudden price hikes mean that tenants in Germany are unlikely to feel the full force of the rising gas prices this year

However, the Tenant’s Association pointed out that, if there is a significant reduction in gas imports, the Federal Network Agency could activate an emergency clause known as the price adjustment clause.

This would allow gas suppliers to pass on higher prices to their customers at short notice. 

The Tenants’ Association has warned that the consequences of an immediate market price adjustment, if it happens, should be legally regulated and socially cushioned.

In the case of the price adjustment clause being activated, the government would have to regulate the costs that companies were allowed to pass onto consumers to prevent social upheaval. 

SHOW COMMENTS