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Germany to double net borrowing for 2021 to fight pandemic impact

11/26/2020 | 11:21pm EST

* Germany plans to borrow 180 bln eur next year

* Debt brake suspended to support the economy

* Funding reserve for unquantified pandemic costs lifted

BERLIN, Nov 27 (Reuters) - Germany plans to almost double the borrowing it had planned for next year to finance emergency aid for businesses during the second wave of the COVID-19 pandemic, Finance Minister Olaf Scholz said on Friday.

The parliamentary budget committee agreed to a debt figure of almost 180 billion euros ($215 billion) - the second largest amount of net new borrowing in the history of post-war Germany.

"Our goal is to overcome this pandemic and grow out of it with full strength next year," Scholz said during a virtual news conference, adding that the stimulus package for this year and next would result in new debt of more than 300 billion euros.

"We know that these are exceptional budgets in 2020 and 2021," said Scholz. He added that the budget provided for financial support to be extended until June 2021.

The new debt approved for 2020 will "by far" not be exhausted, said Scholz, and much will be postponed until next year.

Germany will extend and tighten a partial coronavirus lockdown and keep bars, restaurants and entertainment venues shut until at least Dec. 20.

Chancellor Angela Merkel has suggested that the restrictions may well extend into early next year if infection numbers don't fall significantly.

"The high debt is necessary to bring our country safely through the pandemic," said Eckhardt Rehberg, a lawmaker of Merkel's Christian Democrats (CDU). "We must once again make use of the exemption rule from the debt brake."

Enshrined in the constitution, the brake restricts the issuance of new debt by limiting the federal budget deficit to 0.35% of economic output. Parliament suspended it this year in light of the pandemic.

Merkel's government has already taken unprecedented steps to help companies and small businesses get through the crisis, freeing up billions of euros to soften the pandemic's impact on the economy.

The planned new debt of 179.82 billion euros for 2021 compares to 96 billion euros initially envisaged by Scholz in September.

Economy Minister Peter Altmaier, speaking during the same news conference as Scholz, said he did not expect lockdown measures to produce a "major wave" of insolvencies in the last two months of the year given businesses can draw on financial lifelines.

"I believe that for the sectors primarily concerned (...) we have - through the November and December aid - created a possibility for the economic consequences to remain within manageable limits," he said.

The government expects the economy to shrink by a calendar-adjusted 5.9% in 2020 and rebound by 4.4% in 2021.

($1 = 0.8388 euros) (Reporting by Holger Hansen Additional reporting by Caroline Copley Writing by Madeline Chambers, Joseph Nasr; Editing by Toby Chopra)

© Reuters 2020
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