REPORT FROM THE COMMISSION Germany Report prepared in accordance with Article 126(3) of the Treaty on the Functioning of the European Union
Date: 2020-05-20
Institutions: Directorate-General for Economic and Financial Affairs, European Commission
Subjects: Germany, budget deficit, budget policy, budgetary control, epidemic, gross domestic product, infectious disease, macroeconomics, public debt, stability pact

EN 

  EN 

   EUROPEAN COMMISSION  Brussels, 20.5.2020  COM(2020) 532 final  REPORT FROM THE COMMISSION Germany  Report prepared in accordance with Article 126(3) of the Treaty on the Functioning of the European Union  
 
 
REPORT FROM THE COMMISSION 

Germany 

Report prepared in accordance with Article 126(3) of the Treaty on the Functioning of 
the European Union 

1. 

INTRODUCTION  

On  20  March  2020,  the  Commission  adopted  a  Communication  on  the  activation  of  the 
general  escape  clause  of  the  Stability  and  Growth  Pact.    The  clause,  as  set  out  in  Articles 
5(1),  6(3),  9(1)  and  10(3)  of  Regulation  (EC)  1466/97  and  Articles  3(5)  and  5(2)  of 
Regulation (EC) 1467/97, facilitates the coordination of budgetary policies in times of severe 
economic downturn. In its Communication, the Commission shared with the Council its view 
that, given the expected severe economic downturn resulting from the COVID-19 outbreak, 
the current conditions permit the activation of the clause. On 23 March 2020, the Ministers of 
Finance of the Member States agreed with the assessment of the Commission. The activation 
of  the  general  escape  clause  allows  for  a  temporary  departure  from  the  adjustment  path 
towards  the  medium-term  budgetary  objective,  provided  that  this  does  not  endanger  fiscal 
sustainability in the medium term. For the corrective arm, the Council may also decide, on a 
recommendation  from  the  Commission,  to  adopt  a  revised  fiscal  trajectory.  The  general 
escape  clause  does  not  suspend  the  procedures  of  the  Stability  and  Growth  Pact.  It  allows 
Member States to depart from the budgetary requirements that would normally apply while 
enabling  the  Commission  and  the  Council  to  undertake  the  necessary  policy  coordination 
measures within the framework of the Pact. 

Data  notified  by  the  German  authorities  on  31  March  2020  and  subsequently  validated  by 
Eurostat1 show that the general government balance in Germany reached a surplus of 1.4% of 
GDP in 2019, while general government gross debt stood at 59.8% of GDP. According to the 
2020 Stability Programme, Germany plans a deficit of 7¼% of GDP in 2020, while debt is 
planned at 75¼ % of GDP. 

The planned deficit for 2020 provides prima facie evidence of the  existence of an excessive 
deficit as defined by the Stability and Growth Pact. 

Against this background, the Commission has therefore prepared this report, which analyses 
Germany’s  compliance  with  the  deficit  criterion  of  the  Treaty.  The  debt  criterion  can  be 
considered to be met as the debt ratio in 2019 is below the Treaty reference value of 60% of 
GDP.  It  takes  into  account  all  relevant  factors  and  gives  due  consideration  to  the  major 
economic shock linked to the COVID-19 pandemic.  

1 

https://ec.europa.eu/eurostat/documents/2995521/10294648/2-22042020-AP-EN.pdf/6c8f0ef4-6221-1094-

fef7-a07764b0369f  

1 

 
 
 
 
 
                                                            
Table 1. General government deficit and debt (% of GDP)   

2016 

2017 

2018 

2019 

1.2 

1.2 

1.9 

1.4 

2020 
COM 

-7.0 

2021 
COM 

-1.5 

69.2 

65.3 

61.9 

59.8 

75.6 

71.8 

Deficit 
criterion 

Debt 
criterion 

General 
government 
balance 
General 
government 
gross debt 

Source: Eurostat, Commission 2020 spring forecast 

2. 

DEFICIT CRITERION 

Based  on  the  2020  Stability  Programme,  Germany’s  general  government  deficit  in  2020  is 
expected to reach 7¼% of GDP, above and not close to the Treaty reference value of 3% of 
GDP.  

The planned excess over the Treaty reference value in 2020 is exceptional, as it results from a 
severe economic downturn. Taking into account the impact of the COVID-19 pandemic, the 
Commission 2020 spring forecast projects a contraction of real GDP in 2020 by 6.5%. 

The  planned  excess  over  the  Treaty  reference  value  would  be  temporary  based  on  the 
Commission 2020 spring forecast, which projects the general government deficit to fall under 
3%  of  GDP  in  2021.  However,  those  projections  are  surrounded  by  an  exceptionally  high 
degree of uncertainty. 

In  sum,  the  planned  deficit  for  2020  is  above  and  not  close  to  the  3%-of-GDP  Treaty 
reference value. The planned excess is considered to be exceptional as defined by the Treaty 
and  the  Stability  and  Growth  Pact,  while  the  nature  of  the  excess  is  currently  considered 
temporary. Hence, the analysis suggests that prima facie the deficit criterion as defined by the 
Treaty and Regulation (EC) No 1467/97 is not fulfilled. 

3. 

RELEVANT FACTORS  

Article 126(3) of the Treaty provides that, if a Member State does not fulfil the requirements 
under one or both of those criteria, the Commission has to prepare a report. That report must 
also  “take  into  account  whether  the  government  deficit  exceeds  government  investment 
expenditure  and  take  into  account  all  other  relevant  factors,  including  the  medium-term 
economic and budgetary position of the Member State”.  

Those factors are further clarified in Article 2(3) of Regulation (EC) No 1467/97, which also 
provides  that  “any  other  factors  which,  in  the  opinion  of  the  Member  State  concerned,  are 
relevant in order to comprehensively assess compliance with the deficit and debt criteria and 
which the Member State has put forward to the Council and to the Commission” need to be 
given due consideration. 

As specified in Article 2(4) of Regulation (EC) No 1467/97, as regards compliance with the 
deficit  criterion  in  2020,  since  the  government  debt-to-GDP  ratio  is  planned  to  exceed  the 

2 

 
 
 
 
 
 
 
 
60% reference value in 2020 and the double condition is not met – i.e. that the deficit remains 
close to the reference value and that its excess over the reference value is temporary – those 
relevant  factors  cannot  be  taken  into  account  in  the  steps  leading  to  the  decision  on  the 
existence of an excessive deficit on the basis of the deficit criterion for Germany.  

In the current situation, a key additional factor to take into consideration regarding 2020  is 
the economic impact of the COVID-19 pandemic, which has a very substantial impact on the 
budgetary  situation and  results in  a highly uncertain  outlook. The pandemic has  also led to 
the activation of the general escape clause. 

3.1. 

 COVID-19 pandemic  

The  COVID-19  pandemic  has  led  to  a  major  economic  shock  that  is  having  a  significant 
negative  impact  throughout  the  European  Union.  The  consequences  for  GDP  growth  will 
depend  on  the  duration  of  both  the  pandemic  and  of  the  measures  taken  by  national 
authorities and at European and global level to slow its spread, protect production capacities 
and  support  aggregate  demand.  Member  States  have  already  adopted  or  are  adopting 
budgetary  measures  to  increase  the  capacity  of  health  systems  and  provide  relief  to  those 
individuals  and  sectors  that  are  particularly  affected.  Significant  liquidity  support  measures 
and  other  guarantees  have  also  been  adopted.  Subject  to  more  detailed  information,  the 
competent statistical authorities are to examine whether those measures entail an immediate 
impact on the general government balance or not. Together with the fall in economic activity, 
those measures will contribute to substantially higher government deficit and debt positions. 

3.2 

Medium-term economic position  

Economic  growth  reached  0.6%  in  2019,  mainly  supported  by  the  robust  performance  of 
domestic demand. However, due to the COVID-19 pandemic, the Commission 2020 spring 
forecast  projects  GDP  to  decline  by  6.5%  in  2020,  reflecting  the  disruption  in  economic 
activity caused by the lockdown measures and an unprecedented fall in external demand in 
the  first  half  of  2020.  Private  consumption  is  projected  to  be  hard-hit  due  to  increased 
uncertainty  of  consumers,  an  increase  in  unemployment  and  a  sharp  drop  in  wage  growth. 
Business  investment  is  also  set  to  fall  strongly  in  2020  as  uncertainty  mounts  and 
expectations  of  lower  demand  are  likely  to  have  an  impact  on  firm’s  investment  plans. 
Moreover,  the  macroeconomic  outlook  is  subject  to  exceptional  uncertainty  related  to  the 
duration of the COVID-19 pandemic and its economic impact. This a mitigating factor in the 
assessment of Member State’s compliance with the deficit criterion in 2020. 

3.3 

 Medium-term budgetary position 

Based  on  outturn  data  and  the  Commission  2020  spring  forecast,  Germany  achieved  its 
medium-term budgetary objective  in 2019.  

A supplementary budget for 2020 was adopted by the German Parliament on 25 March 2020, 
to finance the various and sizeable measures for protecting the economy against the effects of 
the COVID-19 pandemic as well as to compensate the shortfalls in tax revenues due to the 

3 

 
 
 
 
 
downturn in economic activity. Those measures include support for the healthcare sector and 
developing  a  vaccine  against  the  COVID-19  virus,  but  mainly  focus  on  stabilising  the 
economy  by  providing  liquidity  support  for  companies  and  grants  to  small  companies  and 
self-employed as well as keeping people employed by using short-time working schemes.  

The Stability Programme lists the various measures adopted, which amount in total to more 
than EUR 450 billion (14% of GDP) in direct support measures and EUR 800 billion (25% of 
GDP) in additional guarantees for loans. The expected budgetary impact including shortfalls 
in  tax  revenues  due  to  automatic  stabilisers  and  granted  tax  deferrals  amounts  to  -7.2%  of 
GDP  for  2020.  The  actual  budgetary  impact  will  also  depend  on  the  uptake  of  the  support 
measures  and  on  the  calling  of  guarantees.  The  fiscal  outlook  is  thus  also  surrounded  by  a 
high degree of uncertainty created by the COVID-19 pandemic. 

3.4.  Medium-term government debt position 

According to the Commission 2020 spring forecast, general government debt is expected to 
rise from 59.8% of GDP in 2019 to 75.6% in 2020. 

The debt sustainability analysis has been updated with the Commission 2020 spring forecast. 
Overall, the debt sustainability assessment indicates that the debt position remains sustainable 
over  the  medium-term,  which  takes  account  of  important  mitigating  factors  (including  the 
debt profile and status). In particular, while the government debt position has deteriorated as 
a result of the COVID-19 crisis, the debt-to-GDP ratio in the baseline is expected to be on a 
sustainable (declining) trajectory over the medium term.2 

2 The baseline is based on the Commission Spring 2020 forecast. Beyond 2021, a gradual adjustment of fiscal 
policy is assumed, consistent with the EU economic and fiscal coordination and surveillance frameworks. Real 
GDP  growth  is  projected  according  to  the  so-called  EPC/OGWG  T+10  methodology.  In  particular,  (real) 
actual  GDP  growth  is  driven  by  its  potential  growth  and  affected  by  any  additional  fiscal  adjustment 
considered  (through  the  fiscal  multiplier).  Inflation  is  assumed  to  converge  gradually  to  2%.  Interest  rates 
assumptions are set in line with financial market expectations. Under the adverse scenario, higher interest rates 
(by 500 bps.) and lower GDP growth (by -0.5 pp.), with respect to the baseline, are assumed (throughout the 
projection horizon). 

4 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
                                                            
Graph 1: Government debt-to-GDP ratio, Germany, % of GDP 

Source: Commission services 

3.5 

Other factors put forward by the Member State 

On  19  May  2020,  the  German  authorities  transmitted  a  letter  with  relevant  factors  in 
accordance with Article 2(3) of Regulation (EC) No 1467/97. The analysis presented in the 
previous sections already broadly covers the key factors put forward by the authorities.  

4. 

CONCLUSIONS 

According  to  the  Stability  Programme,  Germany’s  general  government  deficit  in  2020  is 
planned  to  reach  7¼%  of  GDP,  thereby  exceeding  the  3%  of  GDP  Treaty  reference  value. 
The  planned  excess  over  the  reference  value  is  considered  to  be  exceptional  and  currently 
considered to be temporary. 

In line with the Treaty and the Stability and Growth Pact, this report also examined relevant 
factors.  

As specified in Article 2(4) of Regulation (EC) No 1467/97, as regards compliance with the 
deficit  criterion  in  2020,  since  the  government  debt-to-GDP  ratio  is  planned  to  exceed  the 
60% reference value in 2020 and the double condition is not met – i.e. that the deficit remains 
close to the reference value and that its excess over the reference value is temporary – those 
relevant  factors  cannot  be  taken  into  account  in  the  steps  leading  to  the  decision  on  the 
existence of an excessive deficit on the basis of the deficit criterion for Germany.  

Overall,  the  analysis  suggests  that  the  deficit  criterion  as  defined  in  the  Treaty  and  in 
Regulation (EC) No 1467/1997 is not fulfilled.  

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