German government approves 2022 budget plan with more new debt

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BERLIN – The German cabinet on Wednesday approved plans for a 2022 budget that include an increase in new debt as health and climate change spending rises.

The government plans to spend 443 billion euros ($ 528 billion) next year, up from 547.7 billion euros this year but higher than the 419.8 billion euros planned in a first draft in March.

Finance Minister Olaf Scholz’s latest plan foresees new borrowing of 99.7 billion euros next year. This is down from 240.2 billion euros this year, but more than the 81.5 billion euros initially forecast.

Scholz said Germany is investing heavily in “social cohesion” and “a strong, forward-looking and climate-friendly economy”.

The budget plan could change again, as it will require the approval of the new parliament that emerges from the September 26 elections.

It is difficult to predict what combination of parties will form the next government coalition. Center-right Chancellor Angela Merkel is not seeking re-election. Scholz, a center-left Social Democrat, is one of the candidates to replace her. After six years in the dark, Germany resorted to new debt in 2020 to help cover the cost of support and stimulus packages in the pandemic and an expected shortfall in tax revenue.

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The country’s so-called debt brake was suspended to allow up to € 217.8 billion in new borrowing last year. In the end, Germany only borrowed 130.5 billion euros. The economy suffered less than expected, contracting 4.9%, an even better result than in several other European countries.

The debt brake, introduced about ten years ago, allows new loans to the tune of only 0.35% of annual gross domestic product. It can be suspended to deal with natural disasters or other emergencies beyond the control of the state.

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