Budapest Post

Cum Deo pro Patria et Libertate
Budapest, Europe and world news

The coronavirus crisis has changed the German mindset - and this matters for markets

The coronavirus crisis has changed the German mindset - and this matters for markets

Berlin has been able to use its public finances in a way that no other European nation has. It has announced more than 450 billion euros ($505 billion) so far in immediate fiscal stimulus - the largest initiative in Europe. It also changed its tone towards the European Union.

Germany has made a sharp U-turn in policy due to the coronavirus crisis in what one economist has described as a “blessing in disguise.”

Up to the start of the pandemic, Germany had long been a supporter of fiscal prudency and balanced budgets. It was even written into its constitution that it should not widen its debt burdens. In addition, Germany was often against major plans for European integration. However, its political approach has now changed with the Covid-19 crisis, and this has significant repercussions for financial markets.

“This crisis has clearly led to a remarkable U-turn in German politics,” Carsten Brzeski, chief economist at ING Germany, told CNBC.

“This U-turn means, first of all, get rid of austerity measures, really use fiscal policy in an era where interest rates are negative … but also really invest in further European integration,” he said.

The German government has announced more than 450 billion euros ($505 billion) so far in immediate fiscal stimulus to shield its economy from the ongoing crisis. This represents 13.3% of its 2019 gross domestic product (GDP), according to think tank Bruegel. In comparison, France’s response accounts for a mere 4.4% of its 2019 GDP.

Berlin has been able to use its public finances in a way that no other European nation has. Most European governments have opted for deferrals of tax payments and other measures that do not necessarily strain their finances further and increase their deficits.

“There was no appetite for debt financing (prior to the pandemic),” based on the many years of budget surpluses that Germany was experiencing, Jens Suedekum, professor of international economics at the Duesseldorf Institute for Competition Economics, told CNBC.

“After corona, Germany essentially tailored the biggest rescue package worldwide…there was a pretty drastic shift in German public finances.”

In addition, German Chancellor Angela Merkel announced in May she would support a large-scale debt borrowing program at the EU level — something that had been a taboo in German politics for many years. Hence, many analysts, who had been worried about the stability of the euro zone in the longer term, praised the announcement from Merkel.

“The fact that many (German) government members have said that we need European solidarity and that we need further integration, I think it really marks an enormous shift, (an) enormous change of heart in German politics, which is then this blessing in disguise from the Covid-19 crisis,” Brzeski said.

The shift showed to investors that Germany was committed to supporting its economy and the stability of the EU, irrespective of its previous attitude. Markets have welcomed the move.

The main German stock index has risen about 48% since hitting its lowest point so far in 2020 on March 18. The wider European benchmark, the Stoxx 600, has rallied about 31% over the same period.

Brzeski said investors had been encouraged by the indication that “the austerity champion has turned into (a) big spender.”

If Germany continues down this path, its new political approach could become a “whatever it takes” moment, Brzeski added in reference to a 2012 speech made by former European Central Bank President Mario Draghi that was seen as having prevented the collapse of the euro.


Likely to pay off?

This change in attitude could also mean the country is better placed to deal with the pandemic than it is counterparts.

“Germany is set to come through the initial shock from the pandemic much quicker and better than the rest of the euro zone,” Claus Vistesen, a euro zone economist at Pantheon Macroeconomics, told CNBC.

“The prospect of a relatively resilient Germany is further supported by the fact that Berlin is now seriously flexing its fiscal muscles,” he added in a note last month.

The Bundesbank estimated that the German economy will contract by 7% this year, followed by a pickup in activity by between 3% and 4% in 2021 and 2022.

In comparison, France, Spain and Italy, where the health crisis was more severe, are expected to contract by more than 10% in 2020, according to the International Monetary Fund.

Nonetheless, the future for the German economy will depend on how this fiscal stimulus will be applied.

“Overall, the threat of a decline in globalisation and multilateralism is not good news for Germany, but it has the ability to strengthen itself and Europe to meet those challenges, and that objective hasn’t changed with the virus,” Vistesen said.

AI Disclaimer: An advanced artificial intelligence (AI) system generated the content of this page on its own. This innovative technology conducts extensive research from a variety of reliable sources, performs rigorous fact-checking and verification, cleans up and balances biased or manipulated content, and presents a minimal factual summary that is just enough yet essential for you to function as an informed and educated citizen. Please keep in mind, however, that this system is an evolving technology, and as a result, the article may contain accidental inaccuracies or errors. We urge you to help us improve our site by reporting any inaccuracies you find using the "Contact Us" link at the bottom of this page. Your helpful feedback helps us improve our system and deliver more precise content. When you find an article of interest here, please look for the full and extensive coverage of this topic in traditional news sources, as they are written by professional journalists that we try to support, not replace. We appreciate your understanding and assistance.
Newsletter

Related Articles

0:00
0:00
Close
Altman Says GPT-5 Already Outpaces Him, Warns AI Could Automate 40% of Work
Russian Research Vessel 'Yantar' Tracked Mapping Europe’s Subsea Cables, Raising Security Alarms
Global Cruise Industry Posts Dramatic Comeback with 34.6 Million Passengers in 2024
U.S. Demands Brussels Scrutinize Digital Rules to Prevent Bias Against American Tech
Private Equity’s Fundraising Surge Triggers Concern of European Market Shake-Out
Tokyo’s Jimbōchō Named World’s Coolest Neighbourhood for 2025
European Officials Fear Trump May Shift Blame for Ukraine War onto EU
The Personality Rights Challenge in India’s AI Era
Italy Considers Freezing Retirement Age at 67 to Avert Scheduled Hike
Italian City to Impose Tax on Visiting Dogs Starting in 2026
Study Finds No Safe Level of Alcohol for Dementia Risk
Trump Says Ukraine Can Fully Restore Borders with NATO Backing
Europe Signals Stronger Support for Taiwan at Major Taipei Defence Show
Germany Weighs Excluding France from Key European Fighter Jet Programme
Cyberattack Disrupts Check-in and Boarding Systems at Major European Airports
Björn Borg Breaks Silence: Memoir Reveals Addiction, Shame and Cancer Battle
When Extremism Hijacks Idealism: How the Baader-Meinhof Gang Emerged and Fell
JWST Data Brings TRAPPIST-1e Closer to Earth-Like Habitability
Trump Orders $100,000 Fee on H-1B Visas and Launches ‘Gold Card’ Immigration Pathway
France’s Looming Budget Crisis and Political Fracture Raise Fears of Becoming Europe’s “Sick Man”
Three Russian MiG-31 Jets Breach Estonian Airspace in ‘Unprecedentedly Brazen’ NATO Incident
European manufacturers against ban on polluting cars: "The industry may collapse"
Turkish car manufacturer Togg Enters German Market with 5-Star Electric Sedan and SUV to Challenge European EV Brands
Christian Brueckner Released from German Prison after Serving Unrelated Sentence
World’s Longest Direct Flight China Eastern to Launch 29-Hour Shanghai–Buenos Aires Direct Flight via Auckland in December
New OpenAI Study Finds Majority of ChatGPT Use Is Personal, Not Professional
The conservative right spreads westward: a huge achievement for 'Alternative for Germany' in local elections
Pope Leo Warns of Societal Crisis Over Mega-CEO Pay, Citing Tesla’s Proposed Trillion-Dollar Package
Poland Green-Lights NATO Deployment in Response to Major Russian Drone Incursion
U.S. and China Agree on Framework to Shift TikTok to American Ownership
Le Pen Tightens the Pressure on Macron as France Edges Toward Political Breakdown
Czech Republic signs €1.34 billion contract for Leopard 2A8 main battle tanks with delivery from 2028
Penske Media Sues Google Over “AI Overviews,” Claiming It Uses Journalism Without Consent and Destroys Traffic
Indian Student Engineers Propose “Project REBIRTH” to Protect Aircraft from Crashes Using AI, Airbags and Smart Materials
One in Three Europeans Now Uses TikTok, According to the Chinese Tech Giant
Could AI Nursing Robots Help Healthcare Staffing Shortages?
NATO Deploys ‘Eastern Sentry’ After Russian Drones Violate Polish Airspace
The New Life of Novak Djokovic
German police raid AfD lawmaker’s offices in inquiry over Chinese payments
Volkswagen launches aggressive strategy to fend off Chinese challenge in Europe’s EV market
France Erupts in Mass ‘Block Everything’ Protests on New PM’s First Day
Poland Shoots Down Russian Drones in Airspace Violation During Ukraine Attack
Apple Introduces Ultra-Thin iPhone Air, Enhanced 17 Series and New Health-Focused Wearables
Macron Appoints Sébastien Lecornu as Prime Minister Amid Budget Crisis and Political Turmoil
Vatican hosts first Catholic LGBTQ pilgrimage
Apple Unveils iPhone 17 Series, iPhone Air, Apple Watch 11 and More at 'Awe Dropping' Event
France joins Eurozone’s ‘periphery’ as turmoil deepens, say investors
France Faces New Political Crisis, again, as Prime Minister Bayrou Pushed Out
Nayib Bukele Points Out Belgian Hypocrisy as Brussels Considers Sending Army into the Streets
France, at an Impasse, Heads Toward Another Government Collapse
×