That is why Germany should pay off its corona debts more slowly

The corona crisis is an expensive undertaking for the national budget. Economists have now calculated how big the mountain of debt could be - and presented ideas on how it could be paid off.

The federal government, states and municipalities are expected to pile up a mountain of debt of around 650 billion euros in the course of the fight against corona. This is the result of a current study by the employer-related Institute of the German Economy (IW).

"Depending on what happens in the coming weeks and months, this number can get even bigger," said IW director Michael Hüther on Tuesday at a press conference. Never since 1945 has the state spent so much money on a goal in such a short period of time as in that Corona-Crisis.

"The corona pandemic was and is the greatest economic and socio-political challenge of the post-war period," said Hüther. The question now is how the costs can be managed. His credo: Germany should take its time in reducing its debt. At the same time, politics must provide new impetus so that the economy can position itself well for the future after Corona.

Extend the repayment period to 40 years

"The Debt brake is a problem ”, said Hüther. They ensure that, apart from emergencies, the state hardly has any leeway to push the necessary state investments, for example for digitization or large infrastructure projects.

That is why he and the IW economic experts are pushing for the debt to be reduced as long as possible. Instead of the federal government's plan in 20 years, the debt should be repaid in 40 years, according to the study.

The reason: instead of 24 billion euros annually, Germany would only have to repay 12 billion euros in this case. "If we achieve annual economic growth of three percent in the same period, the national debt ratio could be 2030 percent again in the mid-60s, so that Germany could meet the Maastricht criteria," said Hüther.

Invest 45 billion euros annually

For this, however, extensive investments are necessary. Hüther therefore again pleaded for the idea of ​​a “Germany Fund”, which the IW had already developed at the end of 2019 together with the union-related Institute for Macroeconomics and Business Cycle Research (IMK).

Over a period of ten years, the state should therefore spend 450 billion euros to cover the existing investment deficits in infrastructure, Climate Protection and tackle education. "One possibility would be to finance these expenses through an annual special budget," said Hüther. In this way, Germany could be made afloat with new loans without suspending the debt brake in the meantime.

However, there would be no scope for tax cuts after the federal election in this way. To the latest relief plans of the FDP said Hüther: “I find the idea of ​​a three-stage tax system interesting. However, the following applies: For comprehensive tax cuts, free space would have to be created elsewhere in the budget, regardless of investments in the future. "