Coronavirus: Germany draft budget smashes debt rules by borrowing 180 billion euros

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Germany, traditionally hostile to government borrowing, will take on 180 billion euros in new debt in 2021 as it grapples with the economic fallout from the coronavirus crisis, according to a draft budget agreed Friday.

After 17 hours of discussion, the parliamentary finance committee approved a total of 179.8 billion euros ($214.4 billion) of new debt for next year, according to a final document seen by AFP.

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The agreement further shatters Germany’s constitutionally enshrined debt brake rule, with public spending now nearly 500 billion euros, as the government continues to support the economy through the health crisis.

Borrowing in Europe’s largest economy will be nearly 84 billion euros more than the finance ministry forecast in September, before the arrival of a damaging second wave of Covid-19.

Chancellor Angela Merkel announced tough new measures for November that closed restaurants, bars, as well as the tourism, leisure and cultural industries.

Earlier this week, Merkel announced the extension of these measures through January unless coronavirus case numbers come down dramatically.

On Friday, Germany passed the milestone of one million cases since the start of the pandemic.

The government has promised 10 billion euros in support of sectors specifically hit by the November measures, dubbed “lockdown light” in the media.

Berlin said it would extend for a month emergency aid to support business most affected by the restrictions.

Read the latest updates in our dedicated coronavirus section.

No more balanced budget

The impact of the pandemic has forced Merkel’s government to temporarily abandon its years-long dogma of a running a balanced budget.

This year, Germany will borrow 218 billion euros, after the government pledged more than a trillion euros to shield German workers and companies from the virus fallout.

The new debt is “necessary to get our country safely through the once-in-a-century pandemic”, said the spokesman for Merkel’s CDU party on the budget committee, Eckhardt Rehberg.

The government expects to return to net-zero new borrowing in 2022, in the hope that by then the economy will have returned to pre-crisis levels.

Berlin expects the economy to shrink 5.5 percent this year, before rebounding 4.4 percent next year.

Parliament will reconvene from December 7 to approve the budget.

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