Germany
forced to ponder coronavirus battle without Merkel
Many economists
predict a deeper downturn for the country than at the height of the financial
crisis.
By MATTHEW
KARNITSCHNIG 3/23/20, 1:27 AM CET Updated 3/23/20, 4:38 AM CET
BERLIN —
Now things are really serious.
The news
late Sunday that Chancellor Angela Merkel has gone into quarantine after a
physician she recently saw tested positive for coronavirus has pushed the
already-jittery German nation one step closer to nervous-breakdown territory.
There’s no
indication Merkel, 65, who was exposed when the doctor gave her a pneumococcus
vaccine (in line with German government recommendations for people her age) has
the virus.
Still, if
there’s one thing that’s given Germans solace amid the tumult in recent weeks,
it’s that Merkel, the “forever chancellor” who has led the country through
thick and thin for the past 15 years, is still at the helm. Even Merkel’s
detractors acknowledge she’s a safe pair of hands in uncertain times, having
led the country through the financial implosion of 2008-2009, the eurozone debt
crisis that began in 2010 and the refugee influx of 2015.
Merkel was
Germany’s most popular politician before coronavirus hit and there’s little
reason to expect her calm stewardship over the past couple of weeks has done
anything but bolster Germans’ confidence in her.
In the
coming days, Germany’s parliament is expected to rush through a series of
emergency measures designed to keep the economy from cratering.
Though she
remains in charge — Merkel’s spokesman said in a statement that she will
continue to work from home — Germany (and Europe) now face the prospect of
navigating the pandemic without her.
And there’s
plenty to do.
In the
coming days, Germany’s parliament is expected to rush through a series of
emergency measures designed to keep the economy from cratering.
At the
center of the plan is a proposed supplementary budget worth more than €150
billion on top of the regular budget of €362 billion. In addition, the
government is planning to clear the way for €400 billion in loans to struggling
businesses and hundreds of billions more in credit guarantees for larger
companies.
The
pandemic crisis has dried up business for thousands of firms, small and large,
in recent weeks.
“It is
important to send a clear and strong signal,” Finance Minister Olaf Scholz said
over the weekend.
Scholz, a
Social Democrat who is also vice chancellor, would likely take over Merkel’s
responsibilities, at least on a temporary basis, if she were incapacitated. The
decision would rest in the hands of German President Frank-Walter Steinmeier.
'Schwarze
Null' no more
The
government’s planned crisis measures underscore just how severe Berlin expects
the economic impact of the coronavirus to become. The increased spending will
force the government to break the biggest taboo in German politics by
sacrificing the country’s balanced budget — the so-called schwarze Null, or
“black zero.”
Doing so
will require the ruling coalition — which includes Merkel’s center-right
Christian Democrats and the Social Democrats — to trigger an emergency clause
in the constitution allowing the government to spend more than 0.35 percent of
gross domestic product, which totaled €3.44 trillion in 2019.
Merkel’s
Cabinet is expected to approve the plans Monday, followed by a vote in the
Bundestag on Wednesday. Lifting Germany’s so-called debt brake, however,
requires a majority of MPs (355 of 709) to be present. Party leaders, including
from the opposition Greens and Free Democrats, were scrambling over the weekend
to ensure a quorum.
Though much
maligned abroad in recent years, Germany’s parsimony has arguably put it in a
better position than any other country to weather the current storm. The
country has recorded a budget surplus for the past five years.
While some
economists are projecting a rebound in the second half of the year, that
optimistic scenario depends on a halt in the spread of a virus that has so far
defied most predictions.
Given
German debt yields are currently in negative territory (meaning investors are
paying to hold the country’s bonds thanks to Germany’s solid credit history),
Berlin can effectively borrow money for free.
At least
for now.
Bigger than
Lehman
As has
happened in much of the rest of Europe — and the world at large — the German
economy is grinding to a halt. Major manufacturers, including Volkswagen and
Mercedes, have closed factories and sent workers home. Tourism and retail are
at a standstill. Virtually no aspect of the economy outside the public sector
and food production has been spared the current crisis.
On Sunday,
just before Merkel went into quarantine, she announced a further tightening of
controls on Germans’ freedom of movement and mandatory closures for many
non-essential businesses, including restaurants and cafés, which had remained
opened during daylight hours. The government is betting the tougher rules —
which stop short of an outright house arrest while discouraging people from
leaving home — will save lives by slowing the spread of the coronavirus.
Even so,
the new regulations will deal a further blow to Europe’s biggest economy.
As of
Sunday, more than 24,000 people in Germany had contracted the virus. Though the
pace of new infections has decelerated slightly over the past four days, the
country is far from overcoming the crisis, health officials say. The number of
coronavirus deaths in Germany so far is just under 100 but is expected to rise
substantially in the coming weeks.
Government-imposed
shutdowns across Germany’s 16 Länder, or states, in recent days already forced
the closure of most aspects of public life, including most shops as well as
museums and hotels.
Many
economists are already predicting a deeper downturn for Germany than at the
height of the Lehman Brothers crisis in 2009, when the economy shrank by nearly
5 percent in a single quarter.
“It’s clear
that economic activity in Germany is going to fall dramatically in the coming
weeks,” Commerzbank economists said in a note to clients over the weekend. The
bank projects a decline in economic output of 3.5 percent in the first quarter
and a further drop of 7.5 percent in the second quarter.
Trouble is,
no one knows what happens after that. While some economists are projecting a
rebound in the second half of the year, that optimistic scenario depends on a
halt in the spread of a virus that has so far defied most predictions.
Former
German Finance Minister Peer Steinbrück, who led the effort to preserve the
country’s banking system in the wake of the Lehman bankruptcy, said the
coronavirus posed an even greater threat to the German economy in terms of its
breadth. He encouraged the government to use the “high-caliber” weapons in its
arsenal to stave off a collapse.
“This
crisis is much more existential than what we experienced in the financial
crisis in 2008-2009,” he said, predicting a much deeper downturn than in 2009. “We
shouldn’t kid ourselves.”
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