UPDATE 1-Germany's Scholz plans 2021 budget with new debt of over 80 bln euros – source

BERLIN, Sept 3- German Finance Minister Olaf Scholz is working on a budget for next year that would see Berlin take on net new debt of at least 80 billion euros to fund more measures in the fight against the coronavirus pandemic, a source familiar with the matter said on Thursday. The move underlines Scholz’s determination to move Germany further away from its…

By Michael Nienaber

BERLIN, Sept 3 (Reuters) – German Finance Minister OlafScholz is working on a budget for next year that would seeBerlin take on net new debt of at least 80 billion euros to fundmore measures in the fight against the coronavirus pandemic, asource familiar with the matter said on Thursday.

The move underlines Scholz’s determination to move Germanyfurther away from its former image as Europe’s austeritychampion and cement Berlin’s new role as the biggest spender inthe euro zone’s struggle to recover from the COVID-19 pandemic.

The exact debt figure for 2021 is still subject tonegotiations within Chancellor Angela Merkel’s conservative-ledcoalition government, but Scholz is trying to avoid net new debtexceeding 100 billion euros in 2021, the source told Reuters.

The step will require another suspension of Germany’sconstitutionally enshrined debt limits after Berlin alreadyabandoned them this year, though Scholz is determined to stickto the fiscal rules from 2022 onwards, the source added.

A finance ministry spokesman declined to comment.

Aspects of the debt plans were earlier reported byBloomberg.

Scholz asked parliament this year to suspend the debt brakein the constitution and allow the federal government to take onrecord new borrowing of some 218 billion euros.

This means that Germany’s combined net new debt for 2020 and2021 in the coronavirus pandemic could surge above 300 billioneuros.

Officials have said Germany expects its debt-to-GDP ratio tojump to around 77% in 2020 from just below 60% in 2019. Theoverall public sector budget deficit is seen reaching 7.25% ofGDP this year after a budget surplus of 1.5% last year.

The finance ministry plans to update its tax revenueestimates next week. This will be followed by Scholz’s proposalfor the federal government’s budget in 2021 which the cabinet isexpected to pass on Sept. 23.(Reporting by Michael NienaberEditing by Paul Carrel, William Maclean)

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