Germany’s Scholz eyes more debt to support recovery from coronavirus

BERLIN (Reuters) – Germany’s economy is recovering from the shock of the coronavirus and will reach its pre-crisis size by early 2022 at the latest, Finance Minister Olaf Scholz told Reuters on Monday, but he added that more of debts were necessary to support the results obtained. progress.

German Finance Minister Olaf Scholz attends a Reuters interview at his ministry in Berlin, Germany, September 7, 2020. REUTERS/Hannibal Hanschke

The COVID-19 pandemic plunged Europe’s biggest economy into its deepest recession on record in the first half of the year. Berlin has unleashed an unprecedented series of rescue and stimulus measures, funded by record new borrowing of some 218 billion euros, to help businesses and consumers emerge from the crisis.

“We see that the economic recovery is progressing. That’s a good sign,” Scholz said in the Reuters interview, adding that the economy could also return to pre-crisis levels before 2022 if the recovery is sustained in the right way.

Scholz said he therefore plans to take on new debt to a large extent also next year to support the recovery.

A source familiar with the matter told Reuters last week that Scholz is working on a budget for next year that would see Berlin take on at least 80 billion euros in new net debt to fund more measures in the fight against the coronavirus. coronavirus.

“We will also need a considerable amount of additional borrowing over the next year to secure all that we have achieved,” Scholz said. He declined to give an exact figure.

The step will require a further suspension of Germany’s debt limits enshrined in the Constitution after Berlin already scrapped them this year, although Scholz is determined to stick to fiscal rules from 2022.

“Our goal is that from 2022 we will be in a situation where we can conduct fiscal policy within the normal rules of the constitution,” Scholz said.

“This is precisely why it is so important that we do everything we can this year and next to stabilize the economy. Because our tax revenues also depend on it.

The comments underscore Scholz’s determination to further steer Germany away from its former image as Europe’s champion of austerity and cement Berlin’s new role as the biggest spender in the eurozone’s struggle to recover from the COVID-19 outbreak.

The Ministry of Finance plans to update its tax revenue estimates next week. This will be followed by Scholz’s proposal for the federal government’s budget in 2021, which the cabinet is expected to adopt on September 23.

Reporting by Michael Nienaber; Editing by Douglas Busvine and Ed Osmond

Comments are closed.