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Record German public debt due to pandemic

January 19, 2021

Government spending and support helped prevent widespread economic suffering. But with some aid still barely flowing, critics say amounts remain too low.

Bundestag - Beginn Haushaltswoche
Image: Kay Nietfeld/dpa/picture-alliance

Germany borrowed €130.5 billion ($157.5 billion) in 2020 as it loosened budget rules to help finance pandemic-related rescue and stimulus packages, according to economic figures released on Tuesday. Though a record sum, it is considerably smaller than was originally planned.

The new debts were incurred to help cover the costs of vast support packages in response to the coronavirus pandemic as well as an expected shortfall in tax revenue.

Germany's parliament had authorized €217.8 billion in new borrowing to deal with the health crisis, but new figures show the economy suffered less than previously feared. The national statistics office said last week that gross domestic product (GDP) had declined by only 5% — a better outcome than expected.

Though 0.5% higher than earlier government estimates, it is still less of a decline than during the 2009 financial crisis when output shrank by 5.7%.

Finance Minister Olaf Scholz speaks while Chancellor Angela Merkel looks on.
Gemany's Finance Minister Olaf Scholz defended the nation's record spending and debt levels as necessary to protect health, support businesses and protect the economy during the pandemic. Nevertheless, Angela Merkel's government may borrow even more in 2021.Image: Michael Kappeler/dpa/picture-alliance

Proof of success

Representatives of Germany's ruling coalition government viewed this as a success of the measures taken to support the economy, the largest in Europe.

"Germany is in comparatively good shape because we acted quickly and strongly in the budget,'' said Finance Minister Olaf Scholz in a statement. "We used a lot of money to protect health, support business and secure employment,'' he added. "That pays off in multiple ways. Economic development is better, job losses are smaller, tax income is higher and new borrowing is significantly lower than was forecast."

Still ahead of its peers

Germany is also doing well in relation to other EU nations. On average, economic output in the euro zone fell by 7.8% in 2020. In addition, Germany is expected to have a lower debt ratio after the crisis than all other G7 countries before the crisis.

Prior to 2020, Germany's budget had been in the black for the previous six years. But Germany abandoned its "debt brake" last year to cope with the pandemic. The constitutionally-enshrined rule forbids the government from taking on new debt of more than 0.35% of GDP in any one year during normal times.

Not fast enough

Critics including the opposition Green Party say that aid has been too complex and flowed too slowly to businesses hit by COVID-19 shutdowns.

Technical problems and red tape also meant that many companies only saw payments arriving at the beginning of this year. Finance Minister Scholz has promised to "simplify and extend" the aid.

New debts expected for 2021

Last year's record borrowing could be exceeded in 2021 as the new budget foresees additional debts of €180 billion, including almost €40 billion for corporate bailouts and €35 billion more as a reserve for possible unquantified expenses incurred in connection with the virus pandemic.

In total Chancellor Angela Merkel's government has pledged nearly €1 trillion in aid and stimulus to assist German companies and employees through 2021.

mb/aw (Reuters, AP, AFP)