Borrowing battle looms in Germany

Germany’s borrowing binge will be boosted by another €18bn to shore up its recovery but Angela Merkel’s Christian Democratic Union is planning a rapid return to tough spending restraints.

Berlin will extend a pause on its ultra-prudent approach by targeting €100bn in extra borrowing in 2022 - a fifth higher than previous budget plans. 

It would take borrowing for 2021 and next year to more than €340bn as the debate on big spending intensifies ahead of September’s election.

The finance minister, Olaf Scholz, will propose suspending the strict borrowing limits for a third year due to the pandemic when he presents his budget plans to cabinet on Wednesday, Bloomberg reported.

Ms Merkel told a conference on Tuesday that Germany "will have to spend gigantic sums in coming years" to help the country remain competitive in high-tech sectors. 

However, she added that Covid support must be wound down "when the reason for the aid disappears. Otherwise, there would be a threat of lasting distortion to competition, and public budgets couldn’t come close to covering the demand."

The CDU’s election manifesto this week vowed to return to the “debt brake” - a strict rule that prevents governments ramping up spending in normal times. 

September’s election will be a crucial moment for Germany's strict fiscal policy as the Greens, a likely coalition partner, want to rip up the rulebook written by the CDU.