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Germany plans to borrow €80bn to see out Covid crisis

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Deficit: German finance chief Olaf Scholz is ready to loosen the purse strings

Deficit: German finance chief Olaf Scholz is ready to loosen the purse strings

Deficit: German finance chief Olaf Scholz is ready to loosen the purse strings

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 €80bn to fund more measures in the fight against the coronavirus pandemic, a source familiar with the matter said yesterday.

The move underlines Mr 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 eurozone'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 Mr Scholz is trying to avoid net new debt exceeding €100bn 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 Mr Scholz is determined to stick to the fiscal rules from 2022 onwards, the source added.

A finance ministry spokesman declined to comment.

Mr 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 €218bn.

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

Officials have said Germany expects its debt-to-GDP ratio to jump to around 77pc in 2020 from just below 60pc in 2019.

The overall public sector budget deficit is seen reaching 7.25pc of GDP this year after a budget surplus of 1.5pc last year.

The finance ministry plans to update its tax revenue estimates next week.

This will be followed by Mr Scholz's proposal for the federal government's budget in 2021 which the cabinet is expected to pass on September 23. Covid has seen all governments spend more.

Reuters