Coronavirus: German economists call for drastic action to protect economy

Jill Petzinger
Jill Petzinger, Germany Correspondent, Yahoo Finance UK
From left: Michael Hüther, director of the Institut der deutschen Wirtschaft Köln, Gabriel Felbermayr, president of the Institut für Weltwirtschaft Kiel, Sebatian Dullien, director of the Institut Makroökonomie und Konjunkturforschung, Peter Bofinger, Julius-Maximilians-Universität Würzburg, Jens Südekum, Heinrich-Heine-universität Düsseldorf, and Clemens Fuest, president of the Ifo Institute. (Michael Kappeler/Getty)

Germany’s six leading economists have teamed up to release a paper urging the government to act quickly and decisively to protect the economy from the worst impact of the coronavirus outbreak.

At a press conference on Wednesday in Berlin, the economists, including Ifo president Clemens Fuest and Institute of German Economics director Michael Hüther, said the coalition government needs to consider tax cuts, state participation in companies, and even consider relaxing its “black zero” — the commitment to a debt-free budget—if that is what it takes to correct the economic impact of the coronavirus crisis.

The ‘debt-break’ or balanced-budget law allows for an increased deficit in exceptional emergency situations. 

“The government needs to act now,” Hüther said. The economists point to the fact that the German state has enough fiscal leeway to take “timely, targeted and temporary measures,” to shield businesses, households and the economy from the worst effects of the crisis.

Read more: Germany facing an 'absolutely serious situation' as coronavirus cases surge past 1,000

"German financial policy has great potential for stabilizing the economy… least because of the low debt ratio in international comparison,” the paper says.

In their assessment, the cancellation of trade fairs, trips and events well into May and the ongoing downturn in industrial production will probably provoke an overall economic recession in Germany the first half of this year.

On the other hand, the experts praised Germany’s move to financially support companies that are forced to temporarily halt work or put their staff on reduced hours, noting that if these measures work to prevent bankruptcies and layoffs, then there is a good chance that the economy will pick up again after the wave of infections subsides and that lost production can be made up for.

Read more: Deutsche Bank and ECB confirm staff diagnosed with coronavirus in Frankfurt

On Tuesday, the German government announced it would pledge €1bn ($1.1bn) towards combating coronavirus, with Ralph Brinkhaus,  parliamentary group leader of Angela Merkel’s Christian Democrats saying that “health authorities will get all the resources necessary to act on the corona crisis."