Germany to break balanced budget rule again in 2021

Germany to break balanced budget rule again in 2021
Photo: DPA
Germany will once again breach its balanced-budget policy in 2021 to help pay for massive stimulus measures aimed at steering the economy through the coronavirus pandemic, its finance minister said Wednesday.

Europe's biggest economy would borrow €96.2 billion, abandoning the country's constitutionally-enshrined “debt brake” rule, said Olaf Scholz.

“For 2020 and 2021, we are obliged to ask the parliament to authorise us to borrow an unusually large amount,” Scholz said.

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Germany expects to reinstate the no new debt rule in 2022, Scholz said.

“We're not going to save during the crisis,” he said.

Germany had come into the pandemic with a well-stocked war chest, following several years of strong surpluses amid record low unemployment.

READ ALSO: Germany sees record GDP decline amid coronavirus spending

But the government's room for manoeuvre is shrinking, as tax revenue will fall below expectations as the economy takes a hit during the crisis.

Berlin is already set to borrow €218 billion in 2020.

The devastating impact of the pandemic has forced Chancellor Angela Merkel's government to abandon its years-long habit of running a “black zero” balanced budget, a rule introduced at the height of the financial crisis in 2009.

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 German economy is expected 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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