Berlin abandons austerity, never budgets with so many debts since the Second World War

The times of austerity dogma seem distant for Germany. The crisis due to the coronavirus pandemic has caused even the strict government of Angela Merkel which approved a budget for 2021 which provides for the country to make new debts for 96.2 billion euros.

The additional loans the state will ask for will be the second highest amount of net debt in Europe’s largest economy since the end of World War II, only lower than the record already taken this year of around 218 billion. The fiscal plan, wanted by the Minister of Finance, the Social Democrat Olaf Scholz, to suspend the debt limits sanctioned by the same constitution.

According to the proposal, from 2022 onwards Germany will once again comply with its debt brake rules, limiting it to a small fraction of the gross domestic product. The government’s medium-term budget plans foresee new net debt of € 10.5 billion in 2022, € 6.7 billion in 2023 and € 5.2 billion in 2024. it means that Germany has no intention of returning to its ultra-prudent fiscal policy of keeping a budget as balanced as possible.

According to the principle enshrined in Article 115 of the German Basic Law, according to which income and expenses must, as a rule, be balanced without resorting to the loan. This requirement is met if loan receipts do not exceed the threshold of 0.35 per cent of GDP. As reported by the newspaper “Handelsblatt”, for the social democrat Scholz, the most beloved member of the Merkel government and possible future candidate for the chancellery for the SPD, “high debts are not a cause for concern”.

Germany’s deficit should, in fact, rise to around 80 per cent of GDP, approaching the level reached during the financial crisis of 2008. However, this would be “considerably lower than European standards”. Certainly much lower than the Italian ones, given that our public debt for example in 2019 was 134%, the Greek one even 176%, the Portuguese one 117% and the French one 98%.

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With its billions of euros in investments in infrastructure such as roads and railways and in restructuring the economy to make it greener, Berlin’s goal is to “lay the foundations for strong and sustainable economic growth in Germany”, so that the Country can emerge from the crisis “quickly and forcefully”. The draft budget for 2021 is now being examined by the Bundestag and Bundesrat, with final approval expected by the end of the year.

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