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‘Doing nothing would be more expensive’: Germany to take on debt again in 2021

Germany plans to take on €96.2 billion in new debt in 2021, shattering its cherished no-deficit rule for a second year running to combat the pandemic's economic fallout, Finance Ministry sources said Friday.

Published: 18 September 2020 17:09 CEST
'Doing nothing would be more expensive': Germany to take on debt again in 2021
Photo: DPA

The figure will be formally announced on Wednesday when Finance Minister Olaf Scholz presents next year's federal budget.

Berlin already intends to borrow around €218 billion this year to help pay for massive stimulus and rescue measures aimed at steering Europe's top economy through the Covid-19 crisis.

A Finance Ministry source told news agency DPA: “Doing nothing would be much more expensive.”

The unprecedented spending has forced Chancellor Angela Merkel's government to abandon its years-long habit of running a “black zero” balanced budget, and suspend a constitutionally enshrined “debt brake”.

Introduced at the height of the financial crisis in 2009, the “debt brake” bans Berlin from taking on more than 0.35 percent of gross domestic product (GDP) in new debt in any one year.

Scholz's 2021 budget would see total government debt as a percentage of GDP climb to 75.25 percent, compared with just under 60 percent in 2019.

READ ALSO: Germany to borrow €218.5 billion to fund coronavirus stimulus

Germany expects to return to the “debt brake” and its usual fiscal rigour in 2022, the ministry sources said.

The government is also bracing for a massive drop in tax revenues this year and next.

The country now expects to take in €264.4 billion in federal tax revenues in 2020, down from Scholz's earlier prediction of €275 billion, and well below the €329 billion collected in 2019.

Tax revenues are not expected to reach their pre-crisis level until 2024, the sources said.

Support for people and businesses

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 government has also rolled out a €130-billion stimulus programme to kickstart the economic recovery, including major investments in the health sector.

The German economy is predicted 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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POLITICS

Germany’s Scholz rejects calls for later retirement in Labour Day message

German Chancellor Olaf Scholz (SPD) has rejected calls for later retirement in a video message for Labour Day published on Wednesday.

Published: 1 May 2024 08:12 CEST
Germany's Scholz rejects calls for later retirement in Labour Day message

“For me, it is a question of decency not to deny those who have worked for a long time the retirement they deserve,” said Scholz.

Employees in Germany worked more hours in 2023 than ever before: “That’s why it annoys me when some people talk disparagingly about ‘Germany’s theme park’ – or when people call for raising the retirement age,” he said.

Scholz also warned of creating uncertainty due to new debates about the retirement age. “Younger people who are just starting out in their working lives also have the right to know how long they have to work,” he said.

Scholz did not explicitly say who the criticism was targeted at, but at its party conference last weekend, the coalition partner FDP called for the abolition of pensions at 63 for those with long-term insurance, angering its government partners SPD and the Greens.

Scholz saw the introduction of the minimum wage nine years ago – and its increase to twelve euros per hour by his government – as a “great success”. “The proportion of poorly paid jobs in our country has shrunk as a result,” he said.

READ ALSO: EXPLAINED: Is it worthwhile to set up a private pension plan in Germany?

However, he said there were still too many people “who work hard for too little money,” highlighting the additional support available through housing benefit, child allowance and the reduction of social security contributions for low earners.

“Good collective wage agreements also ensure that many employees finally have more money in their pockets again,” he added. 

And he said that the country wouldn’t “run out of work” in the coming years.

“On the contrary! We need more workers,” he said, explaining that that’s why his government is ensuring “that those who fled to us from Russia’s war in Ukraine get work more quickly.”

Work means “more than making money,” said Scholz. “Work also means: belonging, having colleagues, experiencing recognition and appreciation.”

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