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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.

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COVID-19

Court turns down AfD-led challenge to Germany’s spending in pandemic

The German Constitutional Court rejected challenges Tuesday to Berlin's participation in the European Union's coronavirus recovery fund, but expressed some reservations about the massive package.

Court turns down AfD-led challenge to Germany's spending in pandemic

Germany last year ratified the €750-billion ($790-billion) fund, which offers loans and grants to EU countries hit hardest by the pandemic.

The court in Karlsruhe ruled on two challenges, one submitted by a former founder of the far-right AfD party, and the other by a businessman.

They argued the fund could ultimately lead to Germany, Europe’s biggest economy, having to take on the debts of other EU member states on a permanent basis.

But the Constitutional Court judges ruled the EU measure does not violate Germany’s Basic Law, which forbids the government from sharing other countries’ debts.

READ ALSO: Germany plans return to debt-limit rules in 2023

The judgement noted the government had stressed that the plan was “intended to be a one-time instrument in reaction to an unprecedented crisis”.

It also noted that the German parliament retains “sufficient influence in the decision-making process as to how the funds provided will be used”.

The judges, who ruled six to one against the challenges, did however express some reservations.

They questioned whether paying out such a large amount over the planned period – until 2026 – could really be considered “an exceptional measure” to fight the pandemic.

At least 37 percent of the funds are aimed at achieving climate targets, the judges said, noting it was hard to see a link between combating global warming and the pandemic.

READ ALSO: Germany to fast-track disputed €200 billion energy fund

They also warned against any permanent mechanism that could lead to EU members taking on joint liability over the long term.

Berenberg Bank economist Holger Schmieding said the ruling had “raised serious doubts whether the joint issuance to finance the fund is in line with” EU treaties.

“The German court — once again — emphasised German limits for EU fiscal integration,” he said.

The court had already thrown out a legal challenge, in April 2021, that had initially stopped Berlin from ratifying the financial package.

Along with French President Emmanuel Macron, then chancellor Angela Merkel sketched out the fund in 2020, which eventually was agreed by the EU’s 27 members in December.

The first funds were disbursed in summer 2021, with the most given to Italy and Spain, both hit hard by the pandemic.

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