(Bloomberg) -- Chancellor Angela Merkel said the government will support Germany’s tentative recovery from the fallout of the coronavirus crisis “with all its strength.”
Europe’s largest economy is showing signs of improvement, but the scale of the damage justifies Germany’s unprecedented borrowing and spending, Merkel said in a video statement to Germany’s BDI industry lobby in Berlin on Tuesday.
“Indeed, things have been gradually improving since May,” she said. To support this trend, “new debt under extraordinary circumstances is unavoidable -- and justifiable in these times.”
Merkel’s government responded to the crisis this year with an aggressive trillion-euro fiscal response, retreating from years of budget discipline to pull the country out of its deepest recession in decades. The spending will continue in 2021, when Berlin plans 96.2 billion euros ($113.4 billion) in new borrowing, as constitutional debt restrictions remain suspended.
The German leader has been out front in warning about a surge in coronavirus infections, urging the public to conform with hygiene and distancing rules so the country can avoid lockdowns at all cost.
As Europe heads into the winter months, Germany’s economy has held relatively stable. Unemployment declined for a third month in September, propped up by the government’s wage-subsidy program that has helped support close to 4 million furloughed workers. Merkel’s cabinet has extended the aid, known as “Kurzarbeit,” through the end of 2021.
Still, rising restrictions have curtailed the services sector, and Germany’s Bundesbank expects this year’s recovery to proceed at a slower pace, calling for fiscal support across the 27-member European Union.
Despite its early success in controlling the virus, Germany risks further disruption as infection rates tick up. New coronavirus cases increased by 3,100 on Tuesday, the highest daily rise since mid-April but still well below peak levels of almost 7,000.
©2020 Bloomberg L.P.
