The economy of all humanity is failing

Economist Gabriel Felbermayr : "The state distracts from its own failure"

Gabriel Felbermayr heads the Institute for the World Economy (IfW) in Kiel. In autumn, the native Austrian will move back to his homeland and take over the management of the Austrian Institute for Economic Research (Wifo) in Vienna. In an interview, he explains how the federal government is saving the wrong people with its policies and what long-term consequences the long lockdown will have.

Mr Felbermayr, Germany has been in lockdown for six months - in other countries, on the other hand, people are celebrating parties again. Is Germany being left behind economically?
In the short term, that's a legitimate concern. Germany is not emerging from the Corona Depression, while the economy in regions such as the USA and China is already growing strongly. But it is settled at the end. In this country, too, the economy could pick up quickly once a large part of the population has been vaccinated. That could make up for some of today's losses.

Are there no long-term damage left?
Yes, definitely. In Europe, for example, it will take longer for the labor market to recover: the more severe the economic slump is and the longer it lasts, the sooner unemployment will solidify. This is different to the USA, where many people lost their jobs very quickly - but the job market then returned to normal very quickly. In Europe, on the other hand, many people are likely to be unemployed even after the crisis is long over. Countries like France or Austria will, however, be much more likely to be hit than Germany, where mass unemployment has so far been prevented thanks to short-time working and industrial strength.

What are the long-term consequences of the lockdown for companies?
Every day lockdown destroys more equity in companies. But they need this as security in order to be able to take out loans - not only during the crisis, but also afterwards. The less equity a company has, the less it can invest. That reduces their chances for the future.

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The federal government provides billions in aid for the companies. What went wrong?
Unfortunately, the federal government made the mistake of concentrating purely on the running costs of the rescue packages. With the money from the state, companies can pay their loan interest, fulfill leasing contracts and settle rent. But the entrepreneur's wages, for example, are left out. As a result, companies are forced to gradually use up their equity. That is why the federal government is not using the financial aid to save those for whom they are intended, such as restaurateurs, hoteliers or cultural workers. The profiteers are much more the banks, the insurers and the landlords.

So will more companies give up or have to file for bankruptcy?
We expect both. There will be a relatively large number of business tasks. Imagine an elderly lady who runs a beauty salon and is locked down on some of her expenses. It will simply close at some point and not wait until it is insolvent or over-indebted.

How is it that we have seen so few bankruptcies so far? The obligation to file for bankruptcy is only suspended in the event of over-indebtedness - not for insolvency.
It's up to the banks. If you see that an entrepreneur is in crisis, but his business model is sustainable after the lockdown, you will not call his loan due immediately in the current situation. The increasing over-indebtedness is a bigger problem. As soon as the obligation to file applies again, the number of bankruptcies will increase.

The governing parties are unlikely to risk a wave of bankruptcies before the general election.
That is to be feared. The exemption is likely to be extended further.

Do you think that is wrong?
Yes, because the bankruptcy law is not an evil, capitalist invention, but provides important information. In business life, you need to know what the creditworthiness of your customers and business partners is like. If you simply cannot assess whether or how solvent he or she is, you will be careful. As a result, everyone ends up doing less business - including those who otherwise would have gotten through the crisis well.

In the fight against the pandemic, the government now wants to introduce a federal emergency brake. Is that progress?
It is progress in that all prime ministers now have to obey the rules. The fact that so far some federal states have not complied with the agreed requirements has caused a lot of uncertainty among the population. I find it strange, however, that politicians continue to adhere to the incidence value as a benchmark. The number is not very meaningful: it also increases if more tests are simply carried out. Nor is there any distinction made according to age - although it makes a big difference whether the incidence increases among seniors or among those aged 20 to 30. After 14 months of pandemic, just looking at this one value does not do justice to the complexity of the topic.

From this Monday on, companies must offer their employees at least one corona test per week if they work on site. Do you understand that?
With the obligation to offer tests in the company, the state distracts from its own failure. It would make much more sense if corona tests were basically free of charge for everyone at any time. Then even employees could easily get tested twice a week before going to work. But as it is, the companies bear the costs and the risks.

Does the obligation to make an offer bring anything?
In the fight against the pandemic, this is not the game changer that politicians are hoping for. Companies with large factory teams are already testing regularly. Only a broad-based test strategy would make a difference: if everyone were to have themselves tested regularly - for example, before going shopping in the supermarket.

Companies have to bear the cost of testing their employees themselves. Federal Finance Minister Olaf Scholz argues: The companies should also make their contribution in the fight against the pandemic. Is he right?
No, after all, companies are also victims of the pandemic. The coronavirus does not originate in the companies, but is carried there. Fighting the pandemic is a task for society as a whole, the cost of which is primarily borne by the state. And it's naive to think that companies end up giving away the tests. The costs can be recovered through higher prices or offset against the bridging aid.

While Germany is still dealing with the consequences of the lockdown, the US has already launched a massive economic program for the post-pandemic period. Should Germany take this as a model?
The USA is addressing two points: on the one hand, it is boosting consumption and, on the other, it is investing heavily in infrastructure. In my opinion, increasing consumption would not have been absolutely necessary - in the USA that has more to do with distribution policy and the desire to give something back to the people after Trump's upheavals. But when it comes to investments in infrastructure, Germany should definitely follow the example of the USA. Whether road, rail or power grid - we have some catching up to do.

The calls for more investments existed long before Corona. So is it time to finally get active?
Definitely. Take a look at the election manifestos for the federal election four years ago. Even then, politicians promised extensive investments. The fact that nothing came of it, however, is not due to the money. What we are dealing with here is more of an administrative failure. We lack the planning capacities. For example, extensive programs have been launched to modernize schools - but the money is simply not called up.

But then it doesn't help if more investments are promised in the upcoming election campaign.
A modernization program for the administration would be much more important. But I have not found that in any of the election programs presented so far. Especially since the topic of digitization of administration is not ticked off. As long as too many people have a say in important investment decisions, you will not get the problem under control. It cannot be that it takes 20 to 30 years to build a new rail line. And with the climate change, the problem will tend to get bigger.

In what way?
For example, if you want more renewable energies, you need more power lines. But building them is a major encroachment on the environment. There are many parties who want to have a say, the potential for conflict is great. If the Greens are involved in the next federal government, it will be exciting.

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