Many have said it before, but never really now: It has to get worse before it gets better. This long, dark winter will be quite a challenge for us pandemic-stricken Germans.
We have to refrain from many things; we need to be patient and considerate of others, and at the same time we are called to remain confident. However, there is a reason why we should raise our heads and look to the future without fear. But first, let’s take a look again.
During the first lockdown in the spring of this year, the entire factory was closed, meaning engine and car production came to a halt. Shops large and small were closed. There is no shortage of gloomy forecasts, with some prophets forecasting a 20% drop in GDP for the year.
Ultimately, we will most likely record a 5% contraction for 2020 as a result of the congestion caused by COVID. That’s a lot, but we’ll arrange it. In the summer, the German economy shows everyone what it can do: It finishes the third quarter with a growth rate exceeding 8%. It was truly an incomparable wave.
Who will bear the costs?
In an equally historic development, the government has spent an unprecedented amount of aid money, with billions of euros coming from thrifty Finance Minister Olaf Scholz.
True, the assistance has not reached everyone who needs it most, especially small entrepreneurs and entrepreneurs, and that’s because the software to handle their applications is not yet functioning properly.
In general, you can’t say that the government hasn’t tried to provide quick relief. We are now faced with a new loan of € 180 billion ($ 219 billion) to get the federal budget working next year. Seeing this figure can make you feel dizzy. And who will pay for all this?
However, that is a question you tend to get asked on various occasions these days. Just imagine the € 1.8 trillion European Central Bank emergency bond purchase program. Add to this the € 1.8 trillion package of financial assistance the EU agreed earlier this month after tough negotiations.
At the start of this summer, global aid packages totaled at least $ 15 trillion, sending global debt levels rising at a lightning fast pace. According to the Institute of International Finance, a banking lobby association, global debt equals $ 275 trillion, including corporate and lender liabilities. In comparison, Germany’s economic output in 2019 was $ 4.2 trillion.
Back to a balanced budget
Of course, we are talking about a confusing figure. But are there really any alternatives? Don’t forget that during the Great Depression of the 1930’s, banks and governments withheld financial aid, triggering catastrophic consequences.
It’s different today. During the Asian crisis towards the end of the 1990s and in the years following the global financial crisis in 2008, comprehensive assistance packages were initiated to prevent capital flows from drying out.
Of course, the money has to flow back into the state treasury at some stage. A brief retrospect shows us that after the global financial crisis, the German economy expanded for almost a decade, increasing state revenues through tax revenues.
That revenue increase – coupled with a policy of frugal economic management – has allowed Germany’s finance minister to unleash a huge weapon in the current pandemic. It’s time to correct a misconception that the author of this article himself once considered an outright opponent of the balanced budget policy. Experience tells me that saving something for a rainy day when the economy is booming makes sense and is not a bad recipe for preparing for the future.
Will things get better next year? I believe so. That the first COVID-19 vaccine has been allowed, which means the pandemic will be less terrifying in the future. People will be able and want to travel again and buy cars.
This year, Germans spent between € 70 billion and € 100 billion less than in typical years. It is hoped that the money will soon flow back into consumption and boost the economy.
Some of the dents will remain
Exports are expected to increase rapidly. If the global economy does grow by the 4.2% next year as the OECD predicts, some of that growth will inevitably be generated in the German engineering and automotive sectors and some other industries.
As the company has reduced investment over the past two years, there is much to be done. And don’t forget that billions of various government aid programs have to be spent on a number of infrastructure projects including the expansion of fiber-optic high-speed internet, upgrading of road and rail networks, and digitization.
Of course, not everything will be bright. Not everyone in the hospitality sector and not every small shop owner will survive the pandemic. The number of companies going bankrupt will increase sharply after special interim regulations to prevent bankruptcies end.
Many companies do now survived only because of government assistance will definitely drown. Let’s hope that as few people as possible will lose their jobs – and soon find work elsewhere.
After all, 2020 is a unique year by many standards, and next year will be no less exciting, but hopefully a year with an even better ending.
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