Coronavirus: Germany takes on record debt in 2020 to shield economy from pandemic

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Germany took on record new debt in 2020 to shield the economy from the coronavirus pandemic, but less than expected, official data showed Tuesday.

“Despite the pandemic, we have the finances well under control,” Finance Minister Olaf Scholz told reporters.

Europe’s largest economy took on 130.5 billion euros ($158.3 billion) in new borrowing last year.

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The amount is the highest since German reunification in 1990, but still less than the 218 billion euros in new debt authorized by parliament to deal with the health crisis.

In part this can be explained by a weaker than expected economic slump, thanks to a strong rebound during the summer, the finance ministry said.

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Germany’s economy contracted 5.0 percent in 2020, 0.5 percentage points above the government’s estimates, and a smaller decline than during the 2009 financial crisis when output shrank by 5.7 percent.

Some public investments, including in Germany’s state-owned rail company Deutsche Bahn, were also postponed to 2021.

Further keeping the lid on 2020’s debt figure were delayed payments to businesses hit by COVID-19 shutdowns. Technical problems and red tape meant that many companies only saw payments arriving at the beginning of this year.

Scholz has promised to “simplify and extend” the aid.

Famously frugal Germany abandoned its cherished “debt brake” last year to cope with the pandemic fallout.

The constitutionally-enshrined rule forbids the government from taking on new debt of more than 0.35 percent of gross domestic product (GDP) in any one year in normal times.

Chancellor Angela Merkel’s government has pledged nearly one trillion euros in aid and stimulus to help German companies and employees, including through massive short-time work schemes.

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In total, Berlin plans for 300 billion euros of new debt between 2020 and 2021.

Germany’s debt-to-GDP ratio climbed to 70 percent in 2020, Germany’s central bank said in December, breaching a European Union maximum of 60 percent.