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German finance minister defends record debt to continue fiscal splurge in pandemic

By Michael Nienaber

BERLIN (Reuters) - German Finance Minister Olaf Scholz said on Tuesday he would persist with heavy spending to help Europe's largest economy recover from the coronavirus pandemic as rescue and stimulus measures push debt to its highest level on record.

Speaking to lawmakers to present his draft budget for 2021, he said the government would continue to help companies and consumers by expanding job protection schemes and would keep public investments high.

"With the investments of this budget, we're pushing the door further open for the future of our country," Scholz said.

He defended the draft budget, which envisages net new debt of 96.2 billion euros (87.42 billion pounds) to finance further measures to tackle the coronavirus crisis.

"That's a lot, a lot of money," Scholz said, but added that inaction would eventually lead to even higher costs.

The additional borrowing marks the second-highest amount of net new debt since the end of World War Two. The government has already taken on record high borrowing of some 218 billion euros this year.

The fiscal plans, which include investments in climate protection measures such as a national hydrogen plan, require Germany to suspend its constitutionally enshrined debt limits again in 2021 after parliament abandoned them this year.

The overall debt from federal government, regional states, municipalities and social security funds rose to 2.1089 trillion euros in the first half of 2020, the Federal Statistics Office said.

That was an increase of 11%, or 210.1 billion euros, compared to the previous six months. The previous record was set in the second half of 2012.

"The increase is mainly due to the fact that the public budgets borrowed funds for the purpose of financing measures to overcome the coronavirus crisis," the office said.

From 2022, Germany plans to stick to its debt brake rules again, limiting borrowing to a tiny fraction of gross domestic product. But Berlin is not planning to return to its ultra-prudent fiscal policy of keeping a balanced budget.

(Reporting by Michael Nienaber, Editing by Michelle Adair and Timothy Heritage)