Germany mulls exception to debt brake to fight coronavirus: source

BERLIN (Reuters) - Germany plans to declare an exception to the debt brake enshrined in its constitution to finance fiscal stimulus measures in the fight against the coronavirus, an official with knowledge of the plan said on Thursday.

The decision by Chancellor Angela Merkel’s government, expected to be formalized during a cabinet meeting on Monday, means that the federal government will take on new debt this year for the first time since 2013, the official added.

Under the German debt brake rule, Berlin is allowed to take on new debt of up to 0.35% of economic output. But it can go beyond that if the country is hit by a natural disaster or “exceptional emergencies” that are beyond state control and significantly affect the state’s financial situation.

France has been using the coronavirus crisis to push for more public spending by Germany and other countries with fiscal leeway.

Merkel has vowed to do “whatever it takes” to counter the epidemic’s economic impact, and the government has promised an initial half a trillion euros in liquidity guarantees for affected businesses.

Asked during a news conference last week if Germany would ditch its pledge to keep a balanced budget, Merkel said that her government’s focus was to tackle the outbreak and that the question of taking on new debt was secondary.

Deputy Finance Minister Bettina Hagedorn told Greens lawmaker Sven-Christian Kindler in a letter seen by Reuters that there were strict conditions for using the debt brake exception.

“There are three requirements. The emergency situation must be exceptional, the event must be beyond the control of the state and it must have a significant impact on the state’s financial position and budget,” Hagedorn said.

Asked how much new debt the government could take on if Berlin were to use the exception to the debt brake, Hagedorn said: “There is no upper limit for the additional debt options.”

Reporting by Michael Nienaber; Editing by Alexander Ratz and Paul Carrel