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MIL OSI Translation. Region: Germany / Deutschland –

Source: Federal Ministry of Finanzen22.06.2020 Public Finance

Responsible fiscal policy in times of crisis – the Federal government and the countries to secure essential impulses for the economic recovery and the sustainability of public finances.

The Stability Council met on June 22, 2020, under the chairmanship of the Rhineland-Palatinate Minister of Finance, Doris Ahnen, and the Federal Minister of Finance, Olaf Scholz, by video conference.The overall economic situation in Germany presents the country with an unprecedented challenge. The Federal Government expects a decrease in the price-adjusted gross domestic product by 6.3% this year. This would be the worst recession since the Federal Republic’s existence. Consumption, investments and above all exports are affected, which are falling particularly sharply due to the negative development of the sales markets. As the May tax estimate has shown, the slump in the overall economy is reflected in a significant correction of expected tax revenues: Compared to the October 2019 estimate, it is now expected that around 2020 The Stability Council believes that the COVID 19 pandemic is a natural disaster or an exceptional emergency situation within the meaning of Article 109 paragraph 3 sentence 2 of the Basic Law, which is beyond the control of the state and the state’s financial situation is significantly affected. In this case, the debt brake provides for exemptions with which the crisis can be adequately reacted to and reacted to. The Stabilization Council notes that the fiscal measures taken by the federal and state governments to tackle the COVID-19 pandemic are essential to: cushion the economic impact of the crisis and support the health system. At the same time, fiscal policy is providing targeted impulses to put Germany back on a sustainable growth path. In the view of the Stability Council, in view of the exceptional situation, it is inevitable to take out more loans in the short term to finance the measures than is otherwise permitted. However, the additional debt should be limited to what is necessary. At the same time, the Stability Council advocates keeping an eye on the sustainability of public finances and the necessary consolidation measures. “The value of our responsible financial policy is proving itself in the crisis. Germany is well positioned, we have government finances under control. Even after unprecedented crisis-related spending, debt remains moderate, both historically and internationally. We are spending a lot of money in our hands to get the economy going again. Determined action is part of responsible financial policy. Doing nothing would exacerbate the crisis and increase costs. That is why we are now doing everything we can to get out of the crisis with full strength. “Federal Minister of Finance, Olaf Scholz” The federal and state governments reacted quickly and decisively to the Corona crisis. After the shutdown was largely relaxed, the focus is now on reviving the economy. The stimulus package is tailor-made for this crisis. Private consumption will be triggered, investments will be stimulated and the course set for the future. Therefore it is not a flash in the pan. At the same time, care was taken to ensure that the aid was distributed in a socially balanced manner. “Minister of Finance of the State of Rhineland-Palatinate, Doris Ahnen” We are fully aware of the great responsibility of additional debt, because our children and grandchildren have to repay the loans over decades. In order to get through the crisis well, it is right to help the economy and our municipalities, to support the families and to invest in innovation, sustainability and digitalization. Correctly done, the current emergency aid can also contribute to climate protection and thus position us strongly for the future in the long term. ”Minister of Finance of the State of Schleswig-Holstein, Monika HeinoldThe Stabilization Council expects the upper limit of the structural general government deficit to be significant in 2020, however is exceeded in a permissible manner. As things stand, the structural general government deficit could amount to 5½% of GDP. In accordance with the European Commission, which has activated the general alternative clause of the Stability and Growth Pact (SGP), the Stability Council considers it permissible to exceed the upper limit. The Stabilization Council therefore does not recommend any concrete consolidation measures to reduce the funding deficit at the present time. The Advisory Council shares this assessment and considers the recourse to the exception clause of the SGP to be correct under the current exceptional and crisis-like circumstances. The upper limit for the structural financial deficit therefore does not currently have to be met and no consolidation measures need to be taken to correct it. As soon as the exceptional situation no longer exists, the current exceeding of the upper limit of the structural funding deficit should be corrected in accordance with European regulations. The states of Bremen and Saarland have reported on the current status of their restructuring programs. The Stability Council notes that both countries have largely implemented the restructuring measures and met the upper limit for net borrowing in 2019. The effects of the pandemic and how to cope with it will also have significant financial consequences for the two restructuring countries. Against this background, the Stability Council believes that loan financing is justified. However, this should be limited to what is necessary, since the repayment of the emergency loans taken out will limit scope for action in the coming years. In the medium term, the restructuring of the state budget by reducing excessive indebtedness and strengthening economic and financial strength remains the central financial policy challenge of the two states. The states of Berlin, Bremen, Saarland, Saxony-Anhalt and Schleswig-Holstein will receive consolidation aid up to and including 2019. The Stabilization Council determines that each of the five countries has complied with the agreed consolidation requirements for 2019. The decisions and the advisory documents are published at: www.stabilitaetsrat.de.

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EDITOR’S NOTE: This article is a translation. Apologies should the grammar and/or sentence structure need be perfect.

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