German finance minister defends borrowing for economic stimulus package

The new debts are acceptable for Finance Minister Olaf Scholz (SPD), but he wants to return to German thriftiness soon. [EPA-EFE | Michele Tantussi/Pool]

For once, Germany is not shying away from debt to overcome a crisis. With the second supplementary budget, the state’s additional borrowing due to the coronavirus is raised to a total of €218.5 billion. But criticism is coming from the German Taxpayers’ Federation. EURACTIV Germany reports.

Germany is taking on further debt to finance the coronavirus aid packages. In addition to the first supplementary budget of €156 billion, which mainly went into acute rescue measures, there is now a second budget of €62.5 billion, which is primarily intended to finance the economic stimulus package.

In total, the state is borrowing €218.5 billion to cope with the crisis, which will raise the debt to GDP ratio to 77%.

“That’s a lot of money, but less would not be enough,” Finance Minister Olaf Scholz (SPD) told a federal press conference on Wednesday (17 June).

Scholz was confident that the debt ratio could be reduced again in the following years, above all because of the experiences after the previous financial crisis.

At that time, the debt ratio went down from 81.8% to less than 60. This time, repayment will begin in 2023 and is expected to be largely completed in 20 years.

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Back to “sound fiscal policy” in the future

After the crisis, Scholz wants to return to Germany’s thrifty budget policy as quickly as possible.

He is convinced that “the success we have today is based on the solid financial policy of the past”. Therefore, he wants “to continue this solid financial policy in the future.” However, that does not exclude a “constantly increasing, large investment budget,” which he had always pushed for as finance minister.

There would still be enough “power reserve” for a third fiscal thrust, for example in the state investment reserves. However, Scholz doubts that this will be necessary, as he does not fear a second shutdown.

A broad new wave of infection is unlikely, he said, and therefore expects an undisturbed surge in economic activity.

Criticism of the high level of new borrowing came from the German Taxpayers’ Federation. President Reiner Holznagel was “appalled” by the additional €62.5 billion from the second supplementary budget, he told the Osnabrücker Zeitung.

According to Holznagel, Scholz is taking on “more debt than necessary,” and the repayment plan could be even more ambitious “to repay the debt more quickly.” Holznagel said he suspected that this is the government’s plan “to create a financial cushion before the next federal elections.”

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Social enough for the Social Democrats

Scholz did not mention the Taxpayers Federation by name at the press conference but he did react indirectly to the criticism. He emphasised that the government does not want to act according to the motto: “While we are at it, we might as well do a little bit more.” Instead, it only applies one criterion: “What is really necessary to get through this crisis?”

Scholz responded directly to another criticism, after a journalist pointed out that the social associations complain the plans do not give enough money to the poorest in society. For example, the SPD’s demand for an increase in unemployment benefits has not been met.

Scholz said he shared this regret about the failed proposals, but it still remains “a successful package,” because it provides special support for families, social institutions and non-profit organisations and companies.

[Edited by Zoran Radosavljevic]

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