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Germany’s Scholz Seeks 57 Billion-Euro Aid Plan for Municipalities

Birgit Jennen

(Bloomberg) -- German Finance Minister Olaf Scholz is planning a 57 billion-euro ($62 billion) aid package to help municipalities being hit by the economic fallout from the coronavirus pandemic, a person familiar with the matter said.

The plan, which Scholz announced on Saturday without giving the size of the measures, would help local governments cover outstanding debt and tax shortfalls caused by the pandemic and assist the economic recovery, the person said, asking not to be identified as the information isn’t public.

The news comes as Germany considers stepping up borrowing to fund stimulus measures that could push public debt in Europe’s biggest economy above 80% of gross domestic product, according to a senior Finance Ministry official.

That would be up from about 60% currently and more than the 75% forecast Friday by Deputy Finance Minister Joerg Kukies. The country has leeway to go up to 80%.

The government and parliament have used emergency powers to raise constitutional debt limits and pass a budget plan for new borrowing of 156 billion euros this year. The administration is planning another supplementary budget of 100 billion euros or more, Der Spiegel reported on Friday.

Chancellor Angela Merkel’s ruling coalition has said it will present details on a new stimulus package in early June. Her coalition is seeking to limit extra government spending and is opposed to Scholz’s plan to cover the debt of municipalities.

The German economy shrank 2.2% in the first quarter, the most in more than a decade, official numbers showed earlier Friday. The government expects the economy to contract 6.3% this year.

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