Germany to take on more debt in 2021 due to virus: finance minister

[BERLIN] Germany will need to take on yet more debt in 2021 to mitigate the impact of the coronavirus on the economy, Finance Minister Olaf Scholz said on Friday.

"Next year we will continue to be forced to suspend the debt rule and spend considerable funds to protect the health of citizens and stabilise the economy," Mr Scholz said in an interview with the Funke media group, referring to Germany's cherished policy of keeping a balanced budget.

Mr Scholz already plans to borrow around 218 billion euros ($353.75 billion) this year to help pay for a huge rescue package to steer the country through the coronavirus-induced downturn, blasting through a financial crisis-era "debt brake" written into the constitution.

The government has pledged over a trillion euros in aid to shield companies and citizens in Europe's top economy from the pandemic fallout, including through loans, grants and subsidised shorter-hours programmes.

Mr Scholz, also the vice chancellor of Germany, said he was expecting the economy to have recovered from the virus shock and returned to pre-crisis levels "by the end of next year or the beginning of 2022".

Germany's centre-left Social Democrats (SPD) have nominated Mr Scholz to lead them in the race to succeed Angela Merkel as chancellor in next year's federal election.

Buoyed by his handling of the coronavirus pandemic, Mr Scholz is now the SPD's most popular politician, according to national polls.

Europe's top economy was hit less hard by the coronavirus than its neighbours, but still saw its gross domestic product (GDP) fall by 10.1 per cent in the second quarter after a decline of two per cent in the first.

Germany's previous record for a quarterly GDP drop was 4.7 per cent in the first quarter of 2009, after the financial crisis of 2008.

AFP