In the first half of 2020, the COVID-19 pandemic led to a sizeable general government budget gap of EUR 51.6 bn or 3.2% of GDP. Thus, the abrupt budget swing in the first half of 2020 was even more pronounced than during the global financial crisis (see Chart 1). Even though the corona recession and the associated deterioration in public finances is likely to turn out less severe than initially feared, the general government’s gross public debt ratio is set to rise sharply within the next two years – up to slightly less than 75% of GDP (see Chart 2). On a positive note, by this, the Maastricht debt ratio is likely to stay below its record high of 82.4% of GDP in 2010. Moreover, even then Germany’s debt ratio will be still relatively moderate in an international comparison. Nevertheless, the spike in the debt ratio of almost 15 percentage points of GDP constitutes a large burden for fiscal policies.
The sizeable fiscal gaps in 2020/21 caused by the corona pandemic – which, just at the federal government level, are reflected in record new borrowing of around EUR 218 bn and EUR 96 bn, respectively – are a harsh setback for ensuring long-term public debt sustainability. That said, the sustainability gap of Germany‘s general government sector is estimated at a significant 345% of GDP, according to a recent update by Stiftung Marktwirtschaft on international accounting (Generationenbilanz
). The above indicator not only considers Germany’s explicit (officially disclosed) Maastricht government debt stock of 59.8% of GDP (as of end of 2019) but also captures the government’s implicit (“hidden”) debts, which are set to build up in the future over time due to the government’s current promises regarding public benefits. Because of the corona pandemic this implicit debt stock rose sharply to around 285% of GDP, marking a large increase of 109 percentage points of GDP.