Germany hikes pandemic-related debt plans to more than €450bn

20 March 2021, Dresden: A doctor inoculates a man against the coronavirus at a vaccination centre in Dresden, Germany, on Saturday. Germany's hopes of relaxing its lockdown restrictions in time for Easter holidays at the start of April are dwindling amid a renewed surge in infection rates on Sunday. Photo: Robert Michael/dpa-Zentralbild/dpa

Germany is set to continue massive deficit-spending in the Covid-19 pandemic with a debt-financed supplementary budget of some €60 billion for this year and a 2022 draft budget with net new debt of €81.5 billion, a document showed on Monday.

A third wave of coronavirus infections linked to a more infectious virus variant and a slow vaccination rollout are complicating efforts to further ease lockdown measures.

This, in turn, increases costs for the federal government as it has already extended various rescue and aid measures.

Pandemic-related borrowing

The government’s revised budget plans are pushing up pandemic-related new borrowing to a record €240 billion this year following some €130 billions in 2020, the finance ministry document showed.

This means that Germany’s overall pandemic-related net new debt could exceed €450 billion from 2020 to 2022.

Finance Minister Olaf Scholz is expected to present the supplementary budget for this year and the fiscal framework for 2022 on Wednesday.

To allow this kind of deficit spending, parliament suspended the constitutional debt brake for 2020 and 2021 which normally limits net new borrowing to 0.35 per cent of gross domestic product.

Mr Scholz wants to use the budget emergency clause next year too, but his medium-term plans envisage a return to the constitutional debt brake and, with it, limited deficit spending from 2023 onwards, the document showed.

The finance ministry is planning net new debt of €8.3 billion in 2023, some €11.5 billion in 2024 and €10 billion in 2025, the document showed.

Germany’s budget plans are envisaging a further increase in defense spending to some 1.5 per cent of economic output in 2022, according to the document.

The increased spending means that Germany’s debt-to-GDP ratio is expected to rise to around 75 per cent this year, it showed.


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