June 15, 2020 / 3:25 PM / 24 days ago

Germany's debt plans create budget deficit of 7.25% this year: sources

FILE PHOTO: German Finance Minister and Vice-Chancellor Olaf Scholz addresses a news conference after coalition meetings over stimulus measures to reboot post-coronavirus economy, at the Chancellery in Berlin, Germany June 3, 2020. John Macdougall/Pool via REUTERS

BERLIN (Reuters) - German Finance Minister Olaf Scholz will ask parliament to increase new borrowing by a further 62.5 billion euros ($70.5 billion) to a record 218.5 billion this year for measures to boost recovery from the coronavirus pandemic, two people familiar with the plans said on Monday.

The plan, to be presented in Scholz’s second supplementary budget in three months, underlines Germany’s shift from Europe’s austerity champion to one of the biggest spenders in the euro zone’s efforts to rebound from the pandemic.

Germany’s debt-to-GDP ratio will jump to around 77% in 2020 from just below 60% in 2019, and the overall public sector budget deficit will be 7.25% of GDP this year, the two officials said on condition of anonymity. Berlin recorded a budget surplus of 1.5% last year.

Reuters last week cited a senior official as saying that Germany’s overall new borrowing would probably balloon beyond 200 billion euros this year,

The finance ministry is drawing up a debt settlement plan under which Berlin would repay up to 8 billion euros net per year over 20 years starting from 2023, Merkel’s chief budget lawmaker Eckhardt Rehberg told Bild newspaper.

Scholz is expected to present his new spending plan on Wednesday after discussing it with the cabinet.

Germany is planning stimulus measures worth more than 130 billion euros overall, and a draft of the second supplementary budget seen by Reuters showed that the finance ministry plans to spend 103 billion of that this year, and the rest in 2021.

Among the measures are a temporary cut in value-added tax, cash handouts for parents, funds to rescue small firms from bankruptcy, bigger incentives to buy electric cars and cash injections to stabilise the social security system.

Reporting by Michael Nienaber; Additional reporting by Holger Hansen; Editing by Michelle Martin and Kevin Liffey

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