Germany's Scholz plans 2021 budget with new debt of over 80bn euros

BERLIN: German Finance Minister Olaf Scholz is working on a budget for next year that would see Berlin take on net new debt of at least 80 billion euros to fund more measures in the fight against the coronavirus pandemic, a source familiar with the matter said on Thursday.

The move underlines Scholz's determination to move Germany further away from its former image as Europe's austerity champion and cement Berlin's new role as the biggest spender in the euro zone's struggle to recover from the COVID-19 pandemic.

The exact debt figure for 2021 is still subject to negotiations within Chancellor Angela Merkel's conservative-led coalition government, but Scholz is trying to avoid net new debt exceeding 100 billion euros in 2021, the source told Reuters.

The step will require another suspension of Germany's constitutionally enshrined debt limits after Berlin already abandoned them this year, though Scholz is determined to stick to the fiscal rules from 2022 onwards, the source added.

A finance ministry spokesman declined to comment.

Aspects of the debt plans were earlier reported by Bloomberg.

Scholz asked parliament this year to suspend the debt brake in the constitution and allow the federal government to take on record new borrowing of some 218 billion euros.

This means that Germany's combined net new debt for 2020 and 2021 in the coronavirus pandemic could surge above 300 billion euros.

Officials have said Germany expects its debt-to-GDP ratio to jump to around 77% in 2020 from just below 60% in 2019. The overall public sector budget deficit is seen reaching 7.25% of GDP this year after a budget surplus of 1.5% last year.

The finance ministry 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 pass on Sept. 23.