Due to unexpected needs, the government has delayed the allocation of funds for the coronavirus crisis.
In 2020, Germany's debt increase was less than anticipated, primarily due to the strict constitutional "debt brake" (Schuldenbremse) that limits federal and state borrowing, and the government's careful management of economic support measures in response to the COVID-19 pandemic. These measures, totaling around €130 billion, included subsidies, loans, and Kurzarbeit social benefits, and were partly financed through temporary special funds [2][4][3]. Higher deposits and deferrals of tax revenues also helped manage liquidity and debt levels.
However, in 2021, debt increased more significantly due to ongoing pandemic support measures, economic conditions that strained public finances, and increased spending on business tax breaks, pension payments, and higher interest costs on existing debt. This spending outpaced revenue growth despite efforts to contain borrowing, leading to a high budget deficit [1][3][2]. The 2025 budget revealed a €172 billion budget gap, pushing Germany closer to needing painful spending cuts despite constitutional limits on borrowing.
The German Federal Finance Minister, Olaf Scholz (SPD), had initially planned to take on debt of around 217.8 billion euros in 2020 to combat the corona pandemic. However, the debt increase is now expected to be less than 150 billion euros, a significant reduction [1]. This reduction is likely due to a large part of the economic aid for November and December of the previous year being distributed this year as planned.
The budget for the current year was approved with Scholz's announcement about the lower debt increase for 2020. During final negotiations, the credit volume for 2021 was increased from 96 to around 180 billion euros. The report is based on information from government circles, and the budget closure for 2020 will be officially presented on Tuesday.
Initially, Scholz had announced that more than 300 billion euros would be needed for 2020 and 2021 combined. However, whether the 300 billion euros will be achieved is uncertain due to a potential prolonged lockdown. The economic aid for November and December of the previous year was not distributed in 2020 as planned, and whether it will be distributed in 2021 remains to be seen.
Sources:
[1] Reuters (2021). Germany's Scholz expects 2020 debt to be less than 150 billion euros. [online] Available at: https://www.reuters.com/world/europe/germanys-scholz-expects-2020-debt-be-less-150-billion-euros-2021-02-26/
[2] Deutsche Welle (2021). Germany's debt to rise more in 2021 due to pandemic measures. [online] Available at: https://www.dw.com/en/germanys-debt-to-rise-more-in-2021-due-to-pandemic-measures/a-57402324
[3] Handelsblatt Global (2021). Germany's budget gap widens to €172 billion. [online] Available at: https://www.handelsblatt.com/politik/deutschland/deutschlands-haushaltsluecke-wachst-auf-172-milliarden-euro-an/26840294.html
[4] Bundesministerium der Finanzen (2021). Corona-Krisenstabilisierungspaket 2020. [online] Available at: https://www.bundesfinanzministerium.de/Content/DE/Standardartikel/Artikel/Corona-Krisenstabilisierungspaket-2020-2020-03-18.html
Other reports suggest that politics and general-news will continue to shape Germany's finance and business landscape in 2021, as the government navigates the challenges posed by ongoing pandemic measures and their impact on public finances. The increased spending on business tax breaks, pension payments, and higher interest costs on existing debt are expected to cause a significant budget deficit, potentially necessitating adjustments in spending and possible tax increases.
