Germany Planning New Borrowing of 96.2 Billion Euros Next Year

(Bloomberg) -- Germany’s federal government is planning new borrowing of 96.2 billion euros ($114 billion) next year, as Europe’s biggest economy seeks to spend its way out of the deep recession caused by the coronavirus pandemic.

Chancellor Angela Merkel’s ruling coalition abandoned a long-standing policy of running balanced budgets in March, and new debt is set to swell to a record of around 218 billion euros this year, or about 6% of output. Constitutional restrictions on federal borrowing will be suspended for a second year in 2021, allowing Finance Minister Olaf Scholz to keep the fiscal taps open as the country prepares for a general election due in a year’s time.

From 2022, new debt will be drastically reduced and the mandated borrowing limit restored. New debt is projected to fall to 10.5 billion euros that year, before declining to 6.7 billion euros in 2023 and 5.2 billion euros in 2024. Additional measures, such as tax increases or spending cuts, will be required to reach those targets.

The figures are part of a financing program presented Friday by senior government officials who asked not to be identified in line with briefing rules. The plan is due to be signed off in cabinet on Wednesday, before beginning its passage through parliament at the end of the month.

Next year’s budget plan includes spending of 413.4 billion euros, down from 508.5 billion euros this year, while the deficit will be just under 3% of GDP, according to Bloomberg calculations.

Partly thanks to the government’s giant stimulus program, German activity has staged a strong rebound after collapsing in the second quarter when the country went into widespread lockdown.

The Economy Ministry forecasts that output will still shrink by 5.8% this year, and it doesn’t expect pre-crisis levels to be reached again until 2022. Although that’s one of the biggest contractions since the end of World War II, it’s smaller than initially feared, as measures to shore up domestic demand take hold.

Including programs to guarantee company liquidity and support jobs, the ruling coalition has made more than 1.3 trillion euros available -- by far the most in the European Union.

Some in Merkel’s party have been pushing for greater fiscal restraint already next year, but Merkel has made it clear that she favors maintaining as much budgetary flexibility as possible for the time being.

The financing plan presented Friday includes investments of 55.2 billion euros for next year and 48 billion euros in each of the following three years.

©2020 Bloomberg L.P.