Germany Raises Net Borrowing Next Year to 99.7 Billion Euros
(Bloomberg) -- German Finance Minister Olaf Scholz is targeting 99.7 billion euros ($114 billion) in additional borrowing next year to bolster the country’s recovery from the coronavirus pandemic.
The projected new debt represents a 22% increase from the 81.5 billion euros foreseen in an earlier federal budget plan, according to two senior government officials, who asked not to be identified in line with protocol. The borrowing would take the total for this year and next to more than 340 billion euros.
German bonds fell, with 10-year yields rising two basis points to minus 0.18%.
Scholz -- the Social Democratic candidate to succeed Angela Merkel as chancellor -- will propose suspending constitutional borrowing limits for a third straight year when he presents next year’s draft budget on Wednesday to cabinet. While the current government is due to sign off on the plan, final parliamentary approval won’t happen until after September’s election, which could change the dynamics.
The officials said that Germany will comply with debt limits beginning in 2023. Here’s the government’s projections of additional federal borrowing over the next four years:
|Net federal debt||EU99.7 billion||EU5.4 billion||EU12 billion||EU11.8 billion|
Scholz has consistently argued that Germany can afford hundreds of billions of euros in aid for businesses affected by the pandemic thanks to years of budget discipline. He points out that debt as a percentage of national output will still be the lowest among the Group of Seven nations and lower than after the financial crisis just over a decade ago.
Merkel’s conservative bloc is on track to lead the next administration and favors a return to budget discipline once the coronavirus recedes, while Scholz’s struggling SPD and the second-placed Greens have pledged to invest in a sweeping overhaul of the economy.
The officials said that Germany plans to invest around 51 billion euros a year through 2025. They noted that there was a potential budget gap of 6.2 billion euros in 2025.
“A return to the debt brake in 2023 is imperative,” Eckhardt Rehberg, the CDU/CSU’s leading budget lawmaker, said in a statement. “The new coalition government can decide to change its priorities. Additional spending or tax cuts are possible if financial leeway exists.”
©2021 Bloomberg L.P.