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PoliticsGermany

Scholz defends record debt amid pandemic

September 29, 2020

The German finance minister has kicked off days of debate over the 2021 budget, arguing for more debt to support the economy during the coronavirus pandemic. "It's a really, really" large sum, admitted Scholz.

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Olaf Scholz wearing a midnight blue suit, white shirt and maroon textured tie. He has his right fist raised and clenched.
Image: Michael Kappeler/dpa/picture-alliance

The German finance minister on Tuesday defended asking Germany to take on €96.2 billion ($112.5 billion) in new debt next year to help the country tackle the coronavirus pandemic and its economic impact.

Olaf Scholz's opening speech to the Bundestag, Germany's lower house of parliament, kicked off days of debates over the 2021 budget.

It is a "really, really large" amount of money, admitted Scholz, however, these "giant sums" were necessary to safeguard the country's economy in the future.

"Not trading would be much more expensive than trading," Scholz told the Bundestag.

Read more: German economy plunges by record 9.7%

Record-breaking debt

If agreed by the Bundestag, the amount would be the second-highest sum of new debt ever in modern German history. Berlin set the record earlier this year when it allowed up to €217.8 billion in additional borrowing to help stem the economic effects of the health emergency.

The borrowing was only possible once the government lifted the so-called debt brake that limits the federal government's structural net borrowing to 0.35% of gross domestic product (GDP).

Despite this, most of the political parties represented in the Bundestag have already signaled their approval of the plan.

In total, the 2021 budget plan calls for spending of €413.4 billion, down from this year's exceptionally high €508.5 billion — a figure that was swollen by spending on rescue packages.

A photograph of the bundestag with lawmakers sitting apart from eachother
The German Bundestag kicked off days of debate over its 2021 budgetImage: Kay Nietfeld/dpa/picture-alliance

Can Germany take on that much debt?

Scholz said he was confident Germany could bear the debt. He drew a comparison with the 2009 financial crisis, saying that the debt ratio to economic output went up to around 80% then. During the health pandemic, the ratio would probably be at around 75 to 76%. "This is a good sign," said Scholz.

He called on financial assistance measures put in place to help Germans make it through the pandemic, such as the country's "kurzarbeit" wage subsidy, reduced hours work scheme, to continue.

Otto Fricke, a lawmaker from Germany's business-friendly Free Democratic Party, criticized Scholz's plan, saying he had not said how he intends to pay off the debts in the coming years.

It would be a job for future federal governments, added Fricke. "This has no longer anything to do with sensible budget management."

At the close of four days of debates on October 2, the budget will be discussed in various committees before it can be adopted at the start of next year.

The price of health

kmm/dr (Reuters, dpa, AFP, AP)