Germany’s financial situation is sound in spite of the pandemic
EU member states are required to submit their stability programmes to comply with the provisions of the Stability and Growth Pact. Germany’s Stability Programme reports on the development of the government budget as a whole (federal, state and local levels as well as social insurance schemes) and sets out the objectives of German financial policy. On Wednesday, the Cabinet adopted the German Stability Programme 2021. The figures in the programme are encouraging. In spite of the assistance paid out during the pandemic, Germany’s financial situation remains sound.
By the end of April every year, European Union member states submit their stability programmes to the European Commission and the Economic and Financial Affairs Council (ECOFIN). The programmes set out forecasts for the most important financial-policy indicators and explain the country’s main financial-policy measures.
Need to consolidate because of the pandemic
Europe’s fiscal rules and regulations have currently been suspended as a result of the pandemic. The additional spending and reduced income resulting from COVID-19 mean there is a marked need for consolidation.
According to the latest forecasts set out in the Stability Programme, the government’s financial balance is expected to display a deficit of around 9% of GDP (gross domestic product) this year, after a deficit of 4.2% last year.
Germany’s Maastricht debt ratio is expected to rise to about 74.5% GDP by the end of this year.
Emerging stronger from the crisis
The German Stability Programme for 2021 now adopted by the Cabinet, however, also demonstrates that Germany’s financial policy is continuing to push back forcibly, rigorously and successfully against the economic impacts of the COVID-19 pandemic. The rapid, targeted stabilisation measures taken by the German government have secured income and prevented job losses.
Assistance programmes with immediate effects have helped stabilise the economy, while specifically targeted investments provide the foundation for ensuring that the country emerges stronger from the pandemic in the long term.
No threat to budget stability
Since the debt ratio had been significantly reduced in the years preceding the pandemic, Germany has been able to respond decisively and forcibly to the challenges posed, without jeopardising budget stability.
In the years ahead it will be crucial to ensure that budgets are balanced as far as possible, in order to reduce the national debt again and comply with the Maastricht reference values.