EU recovery fund a 'risk' for German budget: auditors

BERLIN: Germany's federal audit office warned Wednesday that the enormous EU coronavirus recovery fund agreed last year poses a "significant risk" to Germany's domestic budget amid growing debate over government borrowing in Europe's largest economy.

The 750-billion-euro ($858-billion) deal hashed out by EU leaders last July was "in practice a pooling of debt" which "carries significant risk for the federal budget", said federal audit office president Kay Scheller.

"The financial effects will be felt deep into the next generation," he added.

In a report published Wednesday, German auditors criticised the recovery fund, which is part of a landmark 1.8-trillion-euro EU budget currently being ratified by national parliaments.

The report urged German lawmakers to "reduce and make transparent the risks of common debt and liability".

It warned that the "crisis instrument" should not become a long-term solution after Germany broke its longstanding taboo on common European debt by signing up to the plan last year.

The report also said the fund lacked a clear repayment plan, and said Germany would pay in 65 billion euros more than it received in subsidies.

The warnings from the federal audit office come after Germany began an election year amid fierce wrangling over the issue of government debt in the pandemic.

Germany smashed its domestic taboo in new government borrowing in 2020 and 2021 as it scrambles to shield businesses and workers from the economic hit of the coronavirus.

The 2021 budget agreed in December saw the country abandon its constitutionally enshrined "debt brake" for the second year in a row.

In January, Chancellor Angela Merkel's chief of staff Helge Braun caused a major ruckus within his own party when he suggested that the rule on fiscal discipline should be lifted for several years to come.

With parliamentary elections looming September, conservative allies poured scepticism on the suggestion, while Merkel spokesman Steffen Seibert rapidly distanced the chancellor from what he said was Braun's "personal opinion".