Germany plans €160bn of fresh debt in 2021

Germany looks set to borrow a lot more than it had previously planned in 2021, as the COVID-19 crisis will continue to take a heavy financial toll on Europe’s largest economy.

According to a paper from finance minister Olaf Scholz seen by Reuters and Bild, the government will take on €160bn (£142bn, $190bn) in fresh debt in 2021, a significant increase from its September draft budget plan to borrow €96bn.

After years of strict adherence to its debt brake, Germany started borrowing big this year to fund a raft of financial aid packages to shore up the economy in the face of the pandemic. This year, it will borrow around €218bn, and a government source told Reuters that this money has by far not all been spent.

The German central bank said in its monthly report in November that the country’s economic recovery has been “interrupted for the time being,” because of the resurgent coronavirus pandemic.

The new budget bill earmarks almost €40bn for “corona corporate aid,” and €2.7bn for vaccine procurement. The document says that the money for companies will be used for bridging aid, noting that "the Covid-19 pandemic ... poses major challenges for many companies and at least severely restricts their business activities.”

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“We have planned to raise a little more than €300bn for 2020 and 2021 together,” finance minister Olaf Scholz said at a press conference in Berlin on Sunday after the G20 summit. "It will stay that way even with slight modifications in perspective."

Germany reported 8.2% GDP growth in the third quarter compared with the same quarter in 2019. The government also revised its GDP forecast for 2020 to a decline of 5.5%, from 5.8% predicted earlier.

Germany is currently grappling with a second wave of the coronavirus pandemic, with daily new cases hitting record highs last week, and concern mounting the the country’s intensive care units are in danger of being overwhelmed with COVID-19 patients.

Leaders of the 16 states will meet with chancellor Angela Merkel on Wednesday this week to discuss extending the current November lockdown restrictions, potentially until 20 December. Restaurants, bars, entertainment and sports venues are currently shut down.

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IHS Markit’s PMI index today showed that German service-sector activity contracted for the second month in a row in November.

Health minister Jens Spahn is optimistic that the country will be able to start vaccinating citizens from December onwards, having secured more than 300 million vaccine doses via the European Commission, and begun setting up vaccination centres.

Watch: Why can’t governments just print more money?