German Cabinet approves 2021 budget with high borrowing

The crisis has derailed the government’s commitment to budgetary balance, long a point of pride. After six years in the black, 217.8 billion euros will be raised this year to finance rescue and stimulus packages and to cover an expected lack of tax revenue.

“We know that the pandemic is not over yet,” said Finance Minister Olaf Scholz, noting that the government wants to borrow a further 96.2 billion euros to cover the additional expenses of the next year.

“We can go back to times when we don’t have to take out that much additional credit,” said Scholz. “We did that before the crisis and we made sure that debt was reduced in relation to economic output, and we will do that again in the future.”

Between 2022 and 2024, Scholz plans to take out much smaller loans than is permitted under the German “debt brake”. These rules are designed to prevent excessive borrowing that was suspended this year and will have to be suspended again for 2021.

The German economy contracted by 9.7% in the second quarter compared to the previous three-month period. This was by far the worst performance in the 50 years of quarterly GDP numbers. However, this was still one of the less drastic contractions among major European economies during the spring’s sweeping coronavirus shutdowns. France, Italy, Spain and the UK all saw double-digit declines.

For the year as a whole, the government is forecasting a decline in gross domestic product of 5.8%.

German finances were in a solid state before the crisis, which the government tackled with a variety of rescue programs and an economic stimulus package that included a six-month reduction in sales tax and spending on next-generation technologies such as artificial intelligence and mobile broadband expansion Use of hydrogen as a climate-friendly fuel.

The 2021 budget still needs Parliament’s approval.

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