The German government's debt is rising to a new record, measured in absolute terms - and many people are concerned with the question of whether such a policy is sustainable in the long term.

As the Federal Statistical Office reported on Wednesday, the federal, state, municipal and social security funds, including all ancillary budgets, were in debt with 2172.9 billion euros at the end of 2020 - that was the highest debt level measured at the end of a year.

This corresponded to a per capita debt of EUR 26,141, EUR 3,281 more than two years earlier.

Manfred Schäfers

Business correspondent in Berlin.

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In principle, these statistics only consider debts to the non-public sector, i.e. banks, insurance companies and other companies in Germany and abroad.

According to the final figures, public debt rose by 273.8 billion euros within a year.

The federal debt increased in 2020 by 18 percent to 1403.5 billion euros.

Those of the federal states grew by 9.8 percent to 636.0 billion euros.

Sebastian Dullien, Director of the Institute for Macroeconomics and Business Cycle Research (IMK) of the union-affiliated Hans Böckler Foundation, judged that the increase in public debt in the 2020 Corona crisis is not a cause for concern. In an international comparison, Germany's debt ratio is more in the lower third. Important other industrialized countries such as America, Great Britain or France lived without any problems with significantly higher debt ratios.

In a short study on behalf of the employer-related initiative New Social Market Economy (INSM), the Prognos Institute investigated the extent to which the Corona crisis is affecting the long-term sustainability of public finances. The authors assume that the debt brake, which was suspended to cope with the pandemic, will apply again from 2023. In the model, the interest rate level for newly issued government bonds “following the trend of higher inflation rates in the future” rises again to just under 4 percent by 2040, but the debt level itself is growing more slowly than government spending.

According to the short study, the ratio of national debt to gross domestic product, the so-called debt ratio, will rise to almost 74 percent by the end of 2022, after which it will fall again quickly and significantly. In 2028 the rate will be 58 percent below the pre-crisis level of 2019, and in 2040 the rate will be just under 44 percent.

The authors of the study now define “sustainability” of government debt as a debt ratio that has remained constant over the years. Then they consider how high the surplus in the state budget has to be, ignoring the interest payments (“primary balance”), in order to be able to keep the rate of 60 percent stable for certain interest rates and growth rates. Ultimately, they give the all-clear: even in the worst case of an interest rate of 5.3 percent, which has not been observed for a long time, and economic growth of only 2.5 percent (including price increases), the necessary primary surplus of 0.48 percent is less than half as high as in Average of the two decades before the Corona crisis. The authors believe that lowering the debt ratio is not an end in itself.

They suggest that the debt brake should be expanded to include factors such as the interest rate on government bonds and the growth rate of gross domestic product once the rise in the debt ratio caused by the crisis has been reduced again. This would expand the state's scope for shaping it. INSM managing director Hubertus Pellengahr defended the current constitutional rule. The debt brake created the prerequisites for the state to be able to borrow money on the best possible terms during the corona pandemic in order to counter a decline in demand and to secure employment, he said. "We should reduce the national debt quickly after the crisis so that we are also well equipped for potential future crises."