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Germany hikes pandemic-related debt plans to more than 450 billion euros: document

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

FILE PHOTO: German Social Democratic party (SPD) candidate for chancellor Olaf Scholz attends a two-day party meeting in Berlin, Germany February 7, 2021. Tobias Schwarz/Pool via REUTERS

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.

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

This means that Germany’s overall pandemic-related net new debt could exceed 450 billion euros 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% of gross domestic product.

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 euros in 2023, some 11.5 billion euros in 2024 and 10 billion euros in 2025, the document showed.

Germany’s budget plans are envisaging a further increase in defense spending to some 1.5% 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% this year, it showed.

Reporting by Michael Nienaber; Editing by Riham Alkousaa and Bernadette Baum