Oh dear, Angela! Merkel will be forced to break OWN debt limits as economy faces slump

Angela Merkel urges Germans to follow coronavirus guidelines

The warning came from Angela Merkel’s chief of staff Helge Braun. His comments are the clearest sign yet that Berlin is set to continue its fiscal splurge by taking on new debt even if the coronavirus crisis should be overcome.

“The debt brake cannot be adhered to in the coming years even with otherwise strict spending discipline”, Braun wrote in an op-ed piece for business daily Handelsblatt published in its Tuesday edition.

The so-called debt brake rule in the German constitution normally limits new borrowing by the federal government to 0.35 percent of economic output, but parliament suspended it for 2020 and 2021 due to the coronavirus crisis.

Braun suggested that parties should agree on changing the constitutionally enshrined debt limits in a way that more debt would be possible for a couple of years.

But the deal should include a “clear date” when Germany would return to the rule.

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On Monday, the Ifo economic institute said Germany’s business climate index fell to 90.1 from 92.2 in December.

Ifo President Clemens Fuest said: “The second Corona wave has temporarily ended the recovery of the German economy.”

Echoing his comments, Ifo economist Klaus Wohlrabe told Reuters: “The German economy is starting the year with little confidence.”

The German Chancellor agreed last week to extend a national lockdown for the country until mid-February.

Mrs Merkel’s economy ministry hopes the economy will reach its pre-pandemic levels in mid-2022.

Despite her Government’s efforts in lessening the shock of the pandemic last year with rescue and stimulus measures, the new lockdown has caused a stark fall in business confidence and economic activity.

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Ifo’s index on current conditions fell to its lowest since September.

ING economist Carsten Brzeski said: “Fear is back.

“It will take more momentum in the vaccination schemes and a further reduction in the number of infections before the economy can take off again.

“It currently looks as if it will take at least until spring time before this will be the case.”

Finance Minister Olaf Scholz is planning for record new debt of up to 180 billion euros this year to continue rescue and stimulus measures to shield Europe’s largest economy from the impact of the COVID-19 pandemic.

This comes after Berlin took on net new debt of 130.5 billion euros, the highest level of annual borrowing in post-war history.

The shocking figures overseen by Mrs Merkel are more than £70billion (€79billion) higher than the debt incurred in the aftermath of the 2008 financial crash.

The previous record high for national debt in Europe’s largest economy was £39billion (€44billion) in 2010.

Mr Scholz said: “Our resolute aid policy is working.

“We spent a lot of money on health protection, economic support and job security.”

The finance chief added: “Despite the pandemic, we have our finances under control.

“We have the strength to continue to take massive action against the coronavirus crisis, and that is exactly what we are doing.”

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