BERLIN (Reuters) – German Finance Minister Olaf Scholz is considering borrowing up to another 50 billion euros ($56.8 billion) to finance Berlin’s bumper stimulus package, a senior official with knowledge of the discussions told Reuters.
The plan to take on more debt underlines Germany’s massive fiscal shift from Europe’s former austerity champion to one of the biggest spenders in the euro zone’s efforts to counter the economic impact of the coronavirus pandemic.
Chancellor Angela Merkel’s cabinet is planning to pass a second supplementary budget on June 17 to finance its 130-billion-euro stimulus package to support Europe’s largest economy, said the official, who spoke on condition of anonymity.
Another official with knowledge of the budget plans also said the cabinet wanted to pass the extra budget next Wednesday, adding the finance ministry was looking at issuing more debt than the originally envisaged 25-30 billion euros.
Both sources said the finance ministry wanted a bigger financial buffer so it could react better to unexpected events in the second half of the year.
The additional borrowing of up to 50 billion euros would come on top of Berlin’s debt-financed supplementary budget worth 156 billion euros agreed in March.
This means the government’s overall net new borrowing could balloon beyond 200 billion euros this year, equivalent of roughly 6% of Germany’s economic output.
In addition, the government in March issued debt authorization of up to 100 billion euros for its economic stability fund that can take direct equity stakes in companies and up to 100 billion euros in further credit to public-sector development bank KfW for loans to struggling businesses.
A finance ministry spokesman declined to comment on the exact figure of additional debt.
The government predicts Germany’s debt-to-GDP ratio to jump to more than 75% this year from just below 60% in 2019, a leap in German borrowing not seen since a massive stimulus boost during the global financial crisis more than a decade ago.
(Reporting by Holger Hansen and Michael Nienaber; Editing by Maria Sheahan and Toby Chopra)