German Public Deficit to Widen to More Than 7% of GDP This Year

(Bloomberg) --

Germany’s public-sector deficit will likely widen to more than 7% of gross domestic product this year due to extra spending to tackle the coronavirus crisis.

Public debt will also increase after several years of declines, rising to around 75% of total output, according to the government’s latest fiscal report for the European Union. The report was signed off by the cabinet on Wednesday and will now be sent to the European Commission and the Ecofin council.

To cushion the impact of the coronavirus, Chancellor Angela Merkel’s ruling coalition has suspended its commitment to fiscal prudence after years of running balanced budgets. The government has put together a package of emergency measures worth more than 1 trillion euros ($1.1 trillion) and plans to sell a postwar record volume of bonds to help finance it.

Europe’s benchmark issuer may sell 439 billion euros of federal debt this year, the Finance Agency said this month, citing a provisional total that may change. The volume exceeds the previous record in 2010 when Germany earmarked sales worth 343 billion euros as part of its response to the financial crisis.

The federal government deficit is set to widen to almost 5% of GDP in 2020, the finance ministry projected. EU member states are required to submit their medium-term fiscal plans to the EU by the end of April each year.

Under the terms of the EU’s stability and growth pact, nations are expected to comply with reference s for the public-sector deficit of 3% of GDP and for public debt of 60% of GDP.

©2020 Bloomberg L.P.