Merkel Cabinet Backs 2022 Net Borrowing of 100 Billion Euros

Chancellor Angela Merkel’s cabinet approved plans to increase borrowing by 99.7 billion euros ($119 billion) next year to help finance Germany’s response to the coronavirus pandemic.

The projected net debt would take the total for this year and next to more than 340 billion euros. Merkel’s ruling coalition of her conservatives and Finance Minister Olaf Scholz’s Social Democrats have spent freely to offset lingering damage to Europe’s biggest economy.

Under the plans approved Wednesday, a constitutional check on borrowing -- known as the debt brake -- will be suspended next year for a third year in a row. While Germany aims to reinstate the mechanism from 2023, pressure on the federal budget will likely continue. Merkel warned on Tuesday that the country will need massive investment in new technologies to remain competitive.

Net borrowingEU99.7 billionEU5.4 billionEU12 billionEU11.8 billion
Source: Finance Ministry

Scholz’s budget and financing outlook through 2025 probably won’t survive in their current form. The government that takes over after September’s election will likely alter the plans before they go through parliament.

Merkel’s conservative bloc is set to retain power, recent polls suggest, possibly in a coalition with the Greens. The SPD is likely to go into opposition after ruling with the CDU/CSU for all but four years since 2005.

The cabinet also approved measures worth 8 billion euros designed to reduce greenhouse gas emissions and help Germany achieve its goal of climate neutrality by 2045, five years earlier than a previous target.

The government was forced to adopt the more ambitious goal after the constitutional court ruled in April that its climate-protection efforts were falling short and it was putting future generations at risk by delaying the bulk of planned emissions cuts until after 2030.

“This is money well invested, because man-made climate change is the greatest challenge of our time,” Scholz said in an emailed statement, adding that Germany must be a “pioneer in climate protection.”

©2021 Bloomberg L.P.

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