Germany to borrow an additional 100 billion euros as pandemic wreaks havoc
Germany will borrow an additional € 100 billion next year, up € 18.2 billion from previous estimates, a sign of the enormous pressure the pandemic will continue to exert on the country’s public finances. largest economy in Europe.
The additional loan, which is on top of the 370 billion euros in pandemic-related debt contracted by Germany since 2020, was contained in a draft budget for next year which was adopted on Wednesday by the cabinet of Chancellor Angela Merkel. The ministers also adopted the government’s medium-term financial plan until 2025.
However, with the election of a new Bundestag by Germany in September, the spending plan is likely to be subject to substantial changes.
Germany has put in place a plethora of stimulus and emergency aid programs during the Covid-19 crisis and in doing so has had to abandon its long-standing commitment to a balanced budget. He also suspended the “debt brake”, a strict limit on new borrowing enshrined in the German constitution.
The measure, which can be lifted in the event of natural disasters or other emergencies, will have to be suspended for a third consecutive year in 2022 to allow a loan of 99.7 billion euros.
But the finance ministry insisted on Wednesday that it come back into effect from 2023, as planned. He said the level of new net debt would decline to € 5.4 billion in 2023, before dropping to € 12 billion in 2024 and € 11.8 billion in 2025 – levels allowed by the flexible debt brake rules.
The 370 billion euros in pandemic loans have partly helped finance an aid program for companies hit by the lockdowns which is one of the most generous in the Western world. The authorities have disbursed more than 108 billion euros so far: as part of this, they have, since November last year, paid 25.8 billion euros in direct non-refundable subsidies to companies.
Olaf Scholz, Minister of Finance, defended the spending madness, saying the government had “protected the health of many citizens, supported businesses, saved millions of jobs and protected Germany from a downward spiral.” He added: “This is why we are continuing our spirited and decisive fiscal policy in the 2022 budget.”
Government experts predict economic growth of 3.6% in Germany for 2022, which Scholz attributed in part to the shock to the economy from a € 130 billion fiscal stimulus agreed last June. “The ka-boom worked and still works,” he said.
Scholz also said that despite all the new borrowing, Germany’s debt-to-gross domestic product ratio is relatively low. In 2010, in the wake of the global financial crisis, it stood at 82.3%, falling to less than 60% in 2019. This year it is expected to be 74.5%, a level which, according to Scholz, was the lowest of all G7s. countries.
The draft budget provides for 51.8 billion euros of investment spending which will be used in part to support the economic recovery, against 38.1 billion euros before the 2019 crisis. Public investments will remain at the level of 50 billion d ‘euros per year until 2025., as part of the government’s plan. The 2022 plan foresees spending of 443 billion euros, compared to 547.7 billion euros in 2021.