SHARE
COPY LINK

BUDGET

Germany to take on €70 billion more in new debt than expected in 2021

Germany plans to take on €166 billion in new debt next year, according to a draft bill seen by AFP, as measures to curb the second wave of the pandemic eat into government coffers.

Germany to take on €70 billion more in new debt than expected in 2021
Finance Minister Olaf Scholz speaking on Sunday in Berlin. Photo: DPA

Borrowing in Europe's largest economy in 2021 will rise by €69.9 billion more than previously announced, further shattering Germany's constitutionally enshrined debt brake rule, the draft legislation said.

In September, Finance Minister Olaf Scholz said that Germany would take on new debt of €96.2 billion next year.

READ ALSO: 'Doing nothing would be more expensive': Germany to take on new debt again in 2021

But an “extension of corona support”, including through prolonging a short-time working scheme to mid-2021, will boost spending, the report said.

A final decision will be taken by the budget committee in a meeting on Thursday, before being voted on by the German parliament.

Additional costs may need to be added if the country's current curbs shuttering leisure venues and sports facilities as well as limiting restaurants to takeaways are extended past November.

Other industries including in retail and manufacturing have been allowed to stay open.

The government promised an additional €10 billion in support of sectors specifically hit by the November measures, which Chancellor Angela Merkel dubbed “lockdown light”.

The chancellor is expected to take stock of the measures and discuss extensions or further curbs at a meeting with regional leaders of Germany's 16 states on Wednesday.

“What will be discussed on Wednesday must be taken into account afterwards,” a finance ministry spokesperson said.

The impact of the pandemic has forced Merkel's government to temporarily abandon its years-long dogma of a running a balanced budget.

Berlin is expected to borrow €218 billion in 2020, after the government pledged more than a trillion euros to shield German workers and companies from the virus fallout.

Estimates for 2020 tax revenues were ticked up earlier this month to around €278 billion — €3.4 billion more than predicted, but still more than €50 billion below 2019.

Member comments

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

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

SHOW COMMENTS