Corona: Freezing social and economic activities must be accompanied by supportive economic policy

Statement by Prof. Dr. Dr. H. c. Christoph M. Schmidt, president of the RWI Leinbnitz Institute for Economic Research on the German Government's Corona Measures Catalog

    “From an epidemiological point of view, the strategy is absolutely right to limit social contacts as much as possible so that the number of new cases, even in the pending epidemic, does not exacerbate the capacities of hospitals with regard to emergency beds, ventilation places and nursing staff. If the capacity limit were reached, the difficult problem would be how to allocate the scarce places for life support measures.

    A far-reaching “freezing” of social and economic activities not only has to be weighed against the inevitable need for care of the population and the maintenance of public order, but must also be accompanied by supporting economic policy measures.

   It is very welcome that the Federal Government is following the principle of "liquidity comes before profitability" in its announced package of measures and does not want to do things by halves. Comprehensive liquidity support and tax deferrals are designed to protect companies from falling into bankruptcy for reasons of lack of liquidity. Extensions to short-time work allowance allow them to hold onto their employees even after the dry spell of lack of demand and a lack of intermediate products.

    This approach should reduce current uncertainty and give air to deal with the aftermath of the crisis with a cool head.

    However, stimulating overall economic demand through an economic stimulus program would currently run counter to the epidemiologically sensible strategy. The measures that will be taken after the pandemic has subsided should be considered with a cool head when the extent of the economic consequences and the pandemic's end are foreseeable.

    The German economy is fundamentally better equipped to cope with the Corona epidemic than other economies. Comprehensive insurance coverage, the possibility of short-time work and the system of continued wages in the event of illness, as well as the social partnership at company level, contribute to this. Companies are also increasingly using the technical possibilities for home office solutions

    In addition, the reduction in the macroeconomic debt ratio has ensured that there are sufficient buffers for decisive fiscal crisis management. In addition, the debt brake, as the central fiscal guideline for the federal and state governments, is designed so intelligently that in emergency situations there is the necessary fiscal scope beyond the normal debt limits. "

Prof. Dr. Dr. H. c. Christoph M. Schmidt is President of the RWI - Leibniz Institute for Economic Research and Professor at the Ruhr University Bochum. From 2009 to 2020 he was a member of the Council of Experts for the Assessment of Macroeconomic Development, from March 2013 to February 2020 its Chairman.

Source and Photo: RWI Essen