Everything has its price

The social consequences of the economic slowdown caused by the Corona pandemic and subsequent lockdown were cushioned by government spending. So far, the financial consequences have not yet been properly realised, but this is likely to change now.

In Germany, the Federal Employment Agency accumulated a deficit of a good 10 billion euros in the first half of the year; this will increase further in the coming months and run up to around 30 billion euros by the end of the year. This means that the actually high reserves of 26 billion euros have been used up and the state must step in. This development was driven by the short-time working allowance and, of course, the nevertheless unavoidable rise in unemployment. This is probably only the beginning; falling tax revenues and rising social spending are likely to leave deep scars on government budgets in the coming months as well. Moreover, against the backdrop of the upcoming federal elections in 20121 it is unlikely that there will be any changes in spending. As a result, high social spending can still be expected in the coming year.

The result will be a steeply rising deficit in the public budgets. So far, this can still be financed with negative returns, which reduces the interest burden, despite rising debt. However, the high level of debt reduces the scope for action in the future. This must not be lost sight of.

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