Germany plans 96.2 billion euros in new debt next year: sources

FILE PHOTO: German Finance Minister Olaf Scholz attends a Reuters interview in his ministry in Berlin, Germany, September 7, 2020. REUTERS/Hannibal Hanschke

BERLIN (Reuters) - Germany plans to take on net new debt of nearly 96.2 billion euros ($113.90 billion) next year to fight the coronavirus pandemic, finance ministry sources said on Friday.

Draft spending plans also foresee Germany reinstituting its so-called debt break in 2022, which will limit new debt to a tiny fraction of gross domestic product, the sources added.

The pandemic has forced Chancellor Angela Merkel’s government to drop its aversion to borrowing and launch a huge rescue package for the economy. Its includes lower value-added tax rates and subsidies for firms to avoid mass layoffs.

Under current spending plans drafted by Finance Minister Olaf Scholz, the government will be short of 42 billion euros between 2022 and 2024.

Finance ministry officials did not say whether the government would cut spending or increase taxes to address the shortfall.

One possible way for Scholz to plug the gap would be to use a clause in the constitutionally enshrined debt brake law that allows the government to run deficits of up to 0.35% of national output.

Scholz has not ruled out the possibility of raising taxes for high earners to bring down the federal debt, which is expected to exceed 72% of national output this year.

Reporting by Holger Hansen; Writing by Joseph Nasr, editing by Thomas Escritt