The Munich economist Clemens Fuest warns of the state having too much influence on the economy. Above all, the Brussels climate policy sometimes reminds him of the Soviet Union.
Dhe economist and President of the Munich Ifo Institute, Clemens Fuest, has warned of growing belief in the state in Europe. He criticized the fact that directing approaches dominated at the moment. “In the pandemic, religious belief increases,” said Fuest on Thursday evening at a lecture at the Swiss Institute for International Research at the University of Zurich.
Although he showed understanding for the Corona aid at European level, including the bond purchase of the European Central Bank. It is also clear that the state appears as a savior in the crisis. According to Fuest, some of the EU aid is nothing more than a “debt-financed transfer”.
He criticized the “Green New Deal”, with which the Commission wants to make the EU climate-neutral, and the taxonomy with which financial products are to be classified as sustainable. “If you look at that, you have to be restless as an economist,” said Fuest. He sees the taxonomy as a “bureaucratic division of the entire economy”, which leads to a planned economy and a management of capital “which was thought to have been overcome”. That reminds one of the economic policy of the Soviet Union.
Already noticeably decreasing
Fuest also rejects directing capital through “green monetary policy”. It is true that the ECB should consider environmental risks insofar as these impair monetary stability. Privileging sustainable bonds as a refinancing instrument would, however, exceed their mandate. Rather, environmental policy must ensure climate protection – according to Fuest’s opinion of a CO2 price that leaves it up to the market participants to decide where which technology is used. A special capital management by the state and monetary policy is even harmful, as it counteracts the CO2 price effect.
In the fight against pandemics – the actual topic of his lecture – Fuest stated that he did not see any real conflict between health goals and economic goals. Unlike masks and tests, curfews would prevent economic life. Various studies of the lockdowns in the spring showed, however, that activities in the catering trade or job advertisements were noticeably declining even before the state restrictions.
The economy is more likely to suffer from the spread of the virus, regardless of the restrictions, than the restrictions hindering the economy, said Fuest. That was the case with the Spanish flu, he said, referring to research by Sergio Correia, Stephan Luck and Emil Verner. And the example of Sweden, where there were only comparatively low corona restrictions in the spring, teaches that health protection and economic prosperity are not really in conflict. Sweden had around ten times as many fatalities as the neighboring countries Norway and Finland and still suffered a similarly severe economic slump.
Shifting forces in the world economy
The Ifo President presented surprising results from ongoing research together with the economists Andreas Peichl and Florian Neumeier. In July you asked Germans about the lockdown measures in March and the easing in May. The result: The mortality rate due to Covid-19 tended to be underestimated and the only information that changed the attitudes of the participants was the mortality of people over 70.
And while West Germans reacted “clearly” and young people in general more strongly to the provision of information about the consequences of the coronavirus, East Germans have not changed their attitude. Men also reacted to information about economic costs, while women did not – women, on the other hand, did not react to information about the mortality of those over 70 years of age and men did not.
Fuest was cautious about the current economic development. “We are still a long way from full recovery,” he said. Even China is not out of the woods yet. The recent recovery was mainly driven by global industrial activity, but things are not looking so good in other areas of the economy. Fuest emphasized that the corona crisis had eclipsed the financial crisis in terms of slump in growth – and that a shift in power in the global economy was very likely: China should emerge as the winner and increase its share of global gross domestic product by 10 percent, America about the same stay and lose the EU “clearly”.