Germany Lifts 2021 Debt to $215 Billion to Fund Virus Aid

(Bloomberg) — Germany’s federal government will raise new borrowing to just under 180 billion euros ($215 billion) next year to help fund spending to offset the impact of the coronavirus pandemic.

The finance plan for 2021 agreed Friday by lawmakers from Chancellor ’s CDU/CSU bloc and their SPD coalition partners foresees new debt of 179.8 billion euros, almost double the amount initially budgeted.

It also includes total spending of 498.6 billion euros and investments of 61.9 billion euros, underscoring the willingness of Merkel’s ruling coalition to cast aside its long-term policy of running balanced budgets as it tries to lift Europe’s biggest economy out of the crisis.

“I understand that these huge sums provoke mixed feelings,” Finance Minister Olaf Scholz said at a news conference, comparing the virus to a natural disaster like an earthquake or volcanic eruption. “But if we hesitate now, then we’ll feel the effects even more later on, and it’s important to realize that caution would have a much greater cost.”

The government originally planned new borrowing of 96.2 billion euros in 2021, after earmarking 217.8 billion euros for this year. Scholz said that it won’t need to tap anywhere near the full amount in 2020 and that total new debt for this year and next would come to a little over 300 billion euros.

“That’s a lot of money but it would be very bad not to do it,” he said. Germany’s debt as a percentage of gross domestic product will remain below the level it reached after the financial crisis just over a decade ago and will still be lower than in other Group of Seven nations, he added.

Polls suggest the government has broad support among the electorate for its debt splurge. A survey of 1,330 voters for ZDF television published Friday showed that 74% back the decision to ramp up borrowing, with 21% opposed.

This month, businesses affected by virus restrictions such as restaurants and bars can get 75% of their previous year’s revenue in compensation. Extending the aid into December, as Merkel agreed with the 16 state premiers on Wednesday, will cost at least 15 billion euros after around 14 billion euros this month, Scholz said.

“A wave of corporate bankruptcies would be much, much worse and redundancies would be even more expensive,” he said. Bridge aid for companies will be extended until the end of June next year and expanded, he added.

Eckhardt Rehberg, budget spokesman for Merkel’s parliamentary bloc, said earlier Friday that new debt this year could be between 40 billion euros and 60 billion euros lower than originally planned, partly due to higher than expected tax income of around 14 billion euros.

The budget for 2021 will go to a vote in the lower house of parliament, or Bundestag, next month. Lawmakers will also vote in December on suspending debt limits anchored in the constitution for a second straight year in 2021.

(Updates with Scholz comments from fourth paragraph)

©2020 Bloomberg L.P.

Read original article here.