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Germany smashes budget rule with €180 billion in new debt for 2021

Germany, traditionally hostile to government borrowing, will take on €180 billion in new debt in 2021 as it grapples with the economic fallout from the coronavirus crisis, according to a draft budget agreed Friday.

Published: 27 November 2020 10:47 CET
Updated: 27 November 2020 16:30 CET
Germany smashes budget rule with €180 billion in new debt for 2021
Photo: DPA

After 17 hours of discussion, the parliamentary finance committee approved a total of €179.8 billion of new debt for next year, according to a final document seen by AFP.

The agreement further shatters Germany's constitutionally enshrined debt brake rule, with public spending now nearly €500 billion, as the government continues to support the economy through the health crisis.

Borrowing in Europe's largest economy will be nearly €84 billion more than the finance ministry forecast in September, before the arrival of a damaging second wave of Covid-19.

Chancellor Angela Merkel announced tough new measures for November that closed restaurants, bars, as well as the tourism, leisure and cultural industries.

Earlier this week, Merkel announced the extension of these measures through January unless coronavirus case numbers come down dramatically.

On Friday, Germany passed the milestone of one million cases since the start of the pandemic.

The government has promised €10 billion in support of sectors specifically hit by the November measures, dubbed “lockdown light” in the media.

Among the fresh aid announced Friday was €18 billion for companies and the self-employed in December, as restrictions that shut the gastronomy, travel and cultural sectors in Europe's largest economy are to continue into January.

“It costs a lot of money, but the alternative of a wave of bankruptcies and layoffs would be even more expensive for all of us,” Finance Minister Olaf Scholz said.

READ ALSO: Germany plans €17 billion in aid to companies and freelancers for extended shutdown

Berlin said it would extend for a month emergency aid to support business most affected by the restrictions.

The impact of the pandemic has forced Merkel's government to temporarily abandon its years-long dogma of a running a balanced budget.

This year, Germany will borrow €218 billion, after the government pledged more than a trillion euros to shield German workers and companies from the virus fallout.

The new debt is “necessary to get our country safely through the once-in-a-century pandemic”, said the spokesman for Merkel's CDU party on the budget committee, Eckhardt Rehberg.

The government expects to return to net-zero new borrowing in 2022, in the hope that by then the economy will have returned to pre-crisis levels.

Berlin expects the economy to shrink 5.5 percent this year, before rebounding 4.4 percent next year.

Parliament will reconvene from December 7th to approve the budget.

 

 

 

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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.

Published: 6 December 2022 17:23 CET
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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