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MIL OSI Translation. Region: Germany / Deutschland –

Source: Federal Ministry of Finance International / Financial Market

The federal and state governments are pursuing responsible budgetary policies in the Corona crisis – the exceptional situation will continue in 2021

The Stability Council met by video conference on December 18, 2020, chaired by the Federal Minister of Finance, Olaf Scholz, and the Finance Minister of the State of Rhineland-Palatinate, Doris Ahnen, as the chairperson of the Finance Ministers’ Conference Pandemic with a decline in price-adjusted gross domestic product of 5.5%. Growth of 4.4% is expected for 2021. In line with the forecast macroeconomic development, according to the “Tax Estimates” working group, tax revenues will collapse by 8.9% in the current year. A sharp increase is expected for the years 2021 and 2022. However, the level of 2019 is not expected to be reached again until 2022 at the earliest. The overall economic development depends to a large extent on the effects of the currently resolved lockdown and the further course of the COVID-19 pandemic. State measures are also required in 2021 to combat the health risks of the pandemic and to strengthen the overall economy. The Stability Council is of the opinion that a natural disaster or exceptional emergency situation within the meaning of Article 109 of the Basic Law can still be determined for the year 2021. Despite the massive effects of the corona pandemic, the finances of the federal and state levels are in good condition. The stability rules are being observed, the debt level remains low even by international standards. At the same time, the federal and state governments are doing everything they can to counter this crisis with all their might. This resolute policy is in the interests of future generations, because we keep our economy running even in difficult times. Federal Minister of Finance, Olaf Scholz In the Corona crisis, the federal government was very much involved in economic aid, for which the states are grateful. However, the federal states have also invested considerable financial resources in order to fight the pandemic directly, to maintain public services, particularly in the education sector, and to support the federal economic stimulus programs. Overall, the federal states’ current budgets include an increase in net borrowing of over 100 billion euros compared to the planning before the pandemic. Should it be critically discussed whether the measures taken will also be necessary beyond 2020, we are seeing, especially these days, that we need a little longer breath when fighting the corona pandemic and its consequences. Finance Minister of the State of Rhineland-Palatinate, Doris Ahnen In the next two years, we in North Rhine-Westphalia will have to take further necessary and economically sensible measures to deal with the direct and indirect consequences of the corona pandemic as part of the constitutional debt brake. In this way we are strengthening the economic and social foundations of our country, also in the interests of future generations. Finance Minister of the State of North Rhine-Westphalia, Lutz Lienenkämper The Stability Council expects that the upper limit of ½% of GDP for the structural deficit from the fiscal agreement will be exceeded in a permissible manner in 2020 and 2021. The general government deficit is expected to be 5% of GDP this year and approx. 7% of GDP. The projection for 2021 has worsened compared to October, since the pandemic-related corporate aid will continue in the coming year following a resolution by the German Bundestag on the federal budget 2021; however, a lower government deficit than originally expected is to be expected in the current year. As things stand at present, the upper limit for the structural deficit of ½% of GDP can again be adhered to from 2024 onwards. The Stability Council welcomes the European budget monitoring approach to maintain the activation of the general escape clause of the Stability and Growth Pact for 2021 as well. In the years 2022 and 2023, with the general government structural deficit being reduced by more than ½% of GDP, the European budgetary surveillance benchmark for reducing the structural deficit will be met. Against this background, the Stability Council takes the view that the upper limit is exceeded The Advisory Board also assumes that exceeding the deficit ceiling in 2020 and 2021 is a permissible deviation. The estimated excess of the deficit ceiling in 2022 and 2023 is on a downward path in line with European fiscal rules. The Stability Council has for the first time monitored compliance with the constitutional debt brake. He acknowledges that the federal government and all federal states will comply with the federal or respective federal state debt brake in 2020 and 2021. The Stability Council’s harmonized analysis system, which also explicitly takes account of the exceptional situation, does not give rise to any complaints either at the federal level or at the Länder level Saarland are noticeable. Both countries are pursuing restructuring programs that will expire at the end of this year. Your state budgets will face considerable challenges in the next few years, especially with a view to the future repayment obligations for emergency loans taken out with an expected permanently lower income base. Against this background, the Stability Council instructs the Evaluation Committee, in addition to evaluating the final reports on the restructuring programs, in spring 2021 to examine whether there is still a threat of budgetary emergency for Bremen and Saarland. The exceptional situation caused by the pandemic would also have to be taken into account here. The Stability Council notes that the eastern German states have demonstrated that the Solidarity Pact funds are used appropriately. For the entire Solidarity Pact II, the federal government provided more than 161 billion euros from 2005 to 2019, thus exceeding the plan. With these payments, the federal government has significantly supported the eastern German states in overcoming the infrastructure deficit caused by division, improving the quality of life and promoting economic development. The resolutions 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 not be perfect.

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