[ad_1]
The gross domestic product results will reflect not only the fact that Europe’s largest economy began to sink to the bottom in March, but also that its defunct engine has long been in need of repair, a legacy from Chancellor Angela Merkel who likely will last longer than the outbreak.
While the virus-induced slowdown in economic activity may temporarily overshadow any narrative of neglect, it cannot shut down commentators who have long called for a large-scale fiscal stimulus to boost an economy outpaced by all of the world’s major economies. eurozone last year.
Urged by the public to avoid debt, the Merkel government worked diligently to avoid this type of spending, even when it could borrow money almost in vain. Financial officials, whose budget package to combat the recession caused by the pandemic is second only to the United States, argue that the stimulus margin now justifies its abstention. But many economists say that Germany could have spent more before, even before the crisis.
“Fiscal consolidation in the last 10 years has not increased our ability to overcome the crisis,” said Christian Odendahl, chief economist at the European Center for Reform in Berlin. – We have refrained from large expenses or tax cuts. We probably had to do both for the health of the European and global economy. “
Although the virus control measures only went into effect in March, the damage for the entire first quarter will be enormous. Friday’s data may show that Europe’s driving economy has shrunk by 2.3 percent. – more since 2009 in times of global financial crisis.
The European Commission is forecasting 6.5 percent this year. contraction, and while the situation is not as bad as that of Italy or Greece, it is enough for Germany to survive the worst recession since the post-war period. Tax revenues could fall dramatically, as confirmed by Economy Minister Peter Altmaier on Thursday.
Officials have spent hundreds of billions of euros on promotion and assistance, ranging from employee benefits to business loans and guarantees.
© Imago / Scanpix
German virus package
• € 156 billion in debt, or about 4.5 percent. GDP to finance higher social spending and a € 50 billion liquidity fund for the self-employed
• 600 billion euro rescue fund, including loans through the state development bank KfW, cash for company shares and guarantees of 400 billion euros.
• KfW plans an additional € 500 billion to increase liquidity for German companies.
• The government guarantees 100 percent. small business bank loans
However, German economic growth has stalled earlier: in 2019. The slowest expansion was in six years, and many analysts believe the stimulation translated even before the coronavirus. The export-based economic model has been affected by trade disputes between the US. USA And China, and the automotive sector, which has been hit by the emissions fraud scandal, has struggled with a global shift toward electric motors.
“Germany tends to suffer global economic shocks, and we saw it last year,” said Nick Kounis of ABN Amro. “Everyone, except for those responsible for German economic policy, found it strange that there was a lack of investment in Germany, given that financing was so cheap and that the return on investment would exceed financial costs.”
The fact that this did not seem so strange in Germany was also due to local circumstances. The avoidance of constitution-based debt, with the exception of crises, and the habit of maintaining a balanced budget, which is also supported by the electorate, means that any change would be reluctantly accepted.
Finance Minister Olaf Scholz began fiscal easing last year by stepping up green initiatives, but the government has resisted pressure to increase incentives.
The calls were led by the International Monetary Fund, which said Germany needed more investment and tax cuts to reduce its current surplus and help the country’s economy. The European Central Bank also spoke in favor of fiscal easing, although it did not mention the name of Germany.
© Zuma Press / Scanpix
According to the OECD, Germany has lagged behind Britain and France for several years in terms of information technology and infrastructure spending. Its national rail service is known for its unreliability, and some neighboring countries also outperform the quality of mobile phone connections.
Among long-standing internal critics of German fiscal policy is Marcel Fratzscher of the DIW Institute in Berlin, a former ECB official who points out that the lack of funds for an old capital fund such as buildings and roads testifies to public investment during years. Last year, municipalities reported a funding gap of € 138 billion, with schools, streets and administrations at the top of the list.
“When you create greater economic dynamism, you finance yourself,” says Fratzscher. “If there had been more investment, Germany would have had exactly the same opportunities to respond to the crisis as today.”
However, a recent report by the German Council of Economic Experts notes that the collapse of buildings and roads is not the result of lack of funds, but of construction obstacles and bureaucracy. And the crisis has ensured that German hospitals provide first-class services.
Whatever the challenges, they will soon need to be addressed if the country, and the region at large, is to avoid stunting global growth. For example, according to the IG Metall union, the vital auto sector is likely to lose 100,000 jobs as a result of the move toward reduced emissions.
The economic recovery may require not only money, but also a new vision for Merkel or her successor to replace next year. And for now, the country can still feel safe.
“Perhaps more investment would have made Germany more resilient, perhaps by lowering taxes or becoming less dependent on foreign demand and cars,” said Christian Schulz, director of European research at Citigroup. – All these arguments seem to be justified. But in this crisis, the real luxury seems to be the fiscal space. “
What Bloomberg Economists Say
“We hope that virus management measures during quarantine affect the economy less than in other countries.” We forecast 2.9 percent. contraction in the first quarter and 9.3 percent. – In a second. “
[ad_2]
