For the head of the economy, it must now be a matter of getting through the winter with confidence. The pandemic does not last forever – and the state is not there to assume the losses of the companies.
Mr Feld, the pandemic is raging, politicians have imposed a second lockdown. What reserves does the German economy still have?
The substance of the German economy is intact. In the good years before, it had built up significant reserves. This applies to the majority of companies and not least to the banking system. In addition, the intensity of the intervention of the second lockdown is still far from the restrictions in spring 2020. The upswing in manufacturing is still continuing. So the economy will be able to cope with this, although not all companies, especially in the service sector.
If the lockdown doesn’t end in January, is the recession inevitable?
With the renewed tightening of the restrictions, it can be assumed that the fourth quarter of 2020 and the first quarter of 2021 will show negative growth in gross domestic product (GDP). From the perspective of the German Advisory Council, however, a recession requires more than two quarters of negative growth. Other indicators should point downwards. So one has to wait and see whether it will just be a dip in growth or a full-blown recession.
At the beginning of November, the Advisory Council forecast 3.7 percent growth for 2021. Is that still realistic, vaccine hope or not?
The risks are currently outweighing, so that lower growth may result over the entire year 2021. It is no coincidence that the Bundesbank landed at only 3.0 percent growth. For further development, it will essentially depend on what further tightening will look like if they are necessary. Are there school and daycare closings? Are value chains noticeably interrupted? What happens in the manufacturing and construction industries? The vaccines, on the other hand, enable a stronger rebound effect, so that greater dynamics can develop over the course of the year.
Your annual report also stated that a return to pre-crisis levels “will not be achieved before the beginning of 2022”. When will the prosperity that Corona destroyed?
The return to the GDP level of 2019 is only part of the recovery process. The German economy could achieve this as early as the beginning of 2022. But then it has not yet returned to the previous growth path. For that she needs a little more time; there is initially a gap in output. How strong this is depends on whether the Corona crisis reduces the production potential …
… how much Germany can produce at full capacity. So far, you have basically approved of the federal government’s crisis policy. Will it stay that way or is a long-term strategy required?
A long-term strategy is always required, although this is not easy in an election year. With all due respect for day-to-day political business, the acute phase of the corona crisis has been over since summer 2020 – and now it’s about getting through the winter with confidence. This confidence requires that a light be seen at the end of the tunnel. On the one hand, politicians must make it clear to the companies currently affected by closings that the pandemic will not last forever. On the other hand, it is time to signal that the state cannot save all companies. From those affected you can hear voices of desperation, but also joy about the good business with the crisis aid. Compensation for state-imposed restrictions on freedom of trade is all well and good, but the state is not there to cover the losses of companies. They also do not give up their winnings voluntarily.
The German state is borrowing an unprecedented amount. Is he taking over?
No. This year the debt ratio could rise to 70 percent of GDP, and a little more next year. This is a far cry from the situation after the financial crisis. The sustainability of German public finances is in no way at risk. For times of crisis like this, the powder is kept dry. In good times, the financial doves must be countered with the persistence of consolidation, the financial hawks in bad times with the need for an expansionary financial policy. To this end, the debt brake is designed as it is.
What aid the federal government pays is becoming increasingly confusing for outsiders. Is it still fair and proportionate?
The pandemic is not fair. In fact, a recipient of unemployment benefit II who is subject to tough income and asset tests can hardly explain why solo self-employed people receive special assistance. With 75 percent of sales in the same months of the previous year, as with the November and December aid, it ought to make people sit up and take notice that the hospitality industry is no longer shouting out loud, but only criticizing the delays in payments. Unfortunately, the federal government is too hesitant to use the instrument of tax loss carry-back. This would benefit companies with previous profits, i.e. a viable business model, and current losses, so it would be precise and proportionate.
There is fear that already crisis-ridden companies could be artificially kept alive as “zombies”. Is this fear justified?
A crisis is always there to be cleaned up. Crisis and non-sustainable business models should disappear from the market. The state must not delay this process for too long. After the completion of bridging aid III, it should be over.