BERLIN (Reuters) - Germany is ready to take on new debt if necessary to cushion the impact of the coronavirus on Europe’s largest economy, Economy Minister Peter Altmaier said on Monday.
The comments are the clearest sign yet that Berlin is willing to put an end to its domestically cherished but internationally disputed policy of keeping its budget balanced.
Chancellor Angela Merkel said last week Berlin would do everything necessary to slow the spread of the coronavirus and counter its impact on the economy, adding that the pledge of not taking on new debt was secondary now.
“Many are wondering: Can we cope with this? Should we touch our financial reserves? Is it worth it?” Altmaier told the ARD public broadcaster.
“And we’re saying: Yes. Germany has been very successful over the past 20 years. And we’re ready to go into debt if necessary, if there is no other way, to finance this expenditure,” Altmaier added.
Finance Minister Olaf Scholz promised to counter the social and economic impact of the epidemic “with full force”, without giving figures, according to a letter from Scholz to ministers and lawmakers, seen by Reuters.
The federal government has budget reserves of more than 48 billion euros ($54 billion) and could raise up to 35 billion euros of new debt if Berlin decided to ditch its balanced budget goal in the course of the year.
In addition, the Federal Labour Office has reserves of 26 billion euros that can be used to finance state aid for firms under short-time work schemes. The public health system has accumulated reserves of nearly 20 billion euros.
Scholz and Altmaier on Friday promised half a trillion euros in guarantees for business - and more if needed - in a four-point plan to tackle the economic impact of the coronavirus epidemic.
Scholz told Handelsblatt business daily that Berlin was also developing “precise instruments with which we can specifically help the industries that are losing orders or that are severely affected by the protective measures”.
The finance ministry is mulling an emergency fund aimed at helping small and medium-sized companies, Scholz said, adding that there would also be measures to later reduce the debt burden of those companies that are now using liquidity support.
“The private sector can be assured that we won’t let it down,” Scholz said.
Once the virus was contained and economic life started up again, the economy would have to be boosted with suitable measures, Scholz said, adding: “We should then coordinate such stimulus programs in Europe.”
Reporting by Sabine Siebold and Michael Nienaber; Editing by Sandra Maler and Rosalba O'Brien