Germany Boosts Debt by Another $70 Billion to Finance Stimulus

By | June 16, 2020

(Bloomberg) — The German government plans to raise a further 62.5 billion euros ($70 billion) in debt to help pay for a massive stimulus program designed to pull Europe’s largest economy out of its worst recession since World War II.

That would bring total borrowing this year to 218 billion euros and raise the debt burden to 77% of gross domestic product, according to government officials, who asked not to be identified by name in line with briefing rules.

Chancellor Angela Merkel’s cabinet is due to sign off on the supplementary budget on Wednesday before it goes to parliament for approval. Earlier this month her coalition agreed to a sweeping 130 billion-euro stimulus package to spur short-term consumer spending, and get businesses to invest again.

Finance Minister Olaf Scholz has repeatedly said that Germany’s financing needs are manageable and that the government can also fall back on unused surplus funds. The country has slashed debt from over 80% of gross domestic product in the wake of the 2008 financial crisis to around 60%, giving it room for extra borrowing.

Germany’s new borrowing requirements mark an extraordinary about-turn from years of fiscal discipline that produced balanced budgets. In March parliament had already approved extra debt of 156 billion euros as part of a supplementary budget request.

Gross domestic product is expected to contract by 6.3% this year. Following a collapse of output in March and April, activity is expected to bounce back sharply in May and June, followed by more moderate expansion in the second half of the year, the economy ministry said on Monday.

(Updates with govt confirmation from second paragraph)

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