Germany may rein in coronavirus debt if economy improves: finance minister

FRANKFURT (Reuters) – Germany may be able to manage the fiscal impact of the coronavirus crisis without exceeding approved debt levels if the economy recovers in the second half of the year, Finance Minister Olaf Scholz said in an interview published on Sunday.

FILE PHOTO: German Finance Minister Olaf Scholz attends a Reuters interview in his office in Berlin, Germany, April 15, 2020. REUTERS/Hannibal Hanschke

Parliament suspended a debt brake to fight the crisis on March 25 with a supplementary budget of 156 billion euro ($169.67 billion), 100 billion euros for an economic stability fund that can take direct equity stakes in companies, and 100 billion euros in credit to public-sector development bank KfW.

The measures were predominantly aimed at funding healthcare and helping companies.

Asked if 156 billion could remain the top level of new debt, Scholz told the Welt am Sonntag newspaper: “If we manage to move the economic curve upwards again in the second half of the year, then this could be the case.”

He said that Germany would aim to recover the outlays over a long-term period without having to make substantial savings elsewhere.

He praised the country’s social welfare system of capitalism that makes a high level of state support possible, but added this meant there could be higher taxation of top earners after the crisis.

A demand by his Social Democratic party in a coalition government led by Chancellor Angela Merkel’s conservatives, he said such taxation needed to be “fair and just,” supporting lower income groups as well.

The government package further includes a stability fund of 400 billion euros in loan guarantees to secure corporate debt at risk of defaulting, taking the overall sum to more than 750 billion euros.

Scholz said that he would aim to provide economic stimuli, if necessary, after the end of the current lockdown policy that keeps businesses shut and the population at home.

“When it is the right time, we will get measures on their way to stimulate business again,” he said. “Those will have to be as economists would imagine them – targeted, fit for purpose and limited in time.

“Also, we will keep our eyes fixed on the modernisation of our country, such as through the reduction of carbon dioxide emissions, the expansion of electric mobility, or digitisation.”

He said the government was also looking into support measures for hotel and restaurant owners.

Reporting by Vera Eckert; Editing by Mike Harrison

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