Germany hikes pandemic-related borrowing to 470 billion euros

9:48 am Wednesday, June 23rd, 2021

By Michael Nienaber

BERLIN (Reuters) -The German cabinet on Wednesday approved a draft budget for next year with new debt of nearly 100 billion euros ($119 billion) to finance more COVID-19 measures, pushing up total pandemic-related borrowing in the period 2020-2022 to 470 billion euros.

The revised fiscal plans confirm a Reuters report from last Thursday and mark an increase of additional debt in 2022 of some 18 billion euros compared to earlier estimates.

Chancellor Angela Merkel and Finance Minister Olaf Scholz have implemented an unprecedented array of rescue and stimulus measures since March last year to cushion the impact of the COVID-19 pandemic on Europe’s biggest economy.

The packages have been financed with record new borrowing of 130 billion euros in 2020 and 240 billion euros in 2021 for which an emergency clause was used to suspend debt limits in the constitution. The limits will have to be suspended for a third year running to allow borrowing of 99.7 billion euros in 2022.

“We have protected the health of many citizens, supported companies, secured millions of jobs and prevented Germany from entering a downward spiral,” Scholz told reporters.

Scholz said the additional spending should help Germany to emerge strongly from the crisis and that there was reason for optimism as an economic upswing was now underway.

A survey released on Wednesday showed that a services boom pushed private sector growth to its highest level in more than a decade in June, suggesting that the economy ended the second quarter on a strong footing.

The draft budget envisages public investments of 51.8 billion euros in 2022, down slightly from 59.3 billion euros this year.

Scholz’s medium-term budget plans envisage a return to the constitutional debt brake and, with it, limited deficit spending from 2023. This would only allow net new debt of 5.4 billion euros in 2023 and 12 billion euros in 2024.

The next government, which will take power after a Sept. 26 election, will have a final say on the mid-term budget and borrowing plans.

The increased spending means that Germany’s debt-to-GDP ratio will rise from below 60% in 2019 to 74.5% this year – still the lowest among the G7 countries, which also include the United States, Japan, Britain, France, Italy and Canada.

($1 = 0.8377 euros)

(Reporting by Michael NienaberEditing by Caroline Copley and Gareth Jones)