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
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
The Country That Got Too Rich? Public Spending Dominates Norway Election
EU Proposes Phasing Out Russian Oil and Gas by End of 2027 to End Energy Dependence
More Than 150,000 Followers for a Fictional Character: The New Influencers Are AI Creations
EU Prepares for War
Trump Threatens Retaliatory Tariffs After EU Imposes €2.95 Billion Fine on Google
Tesla Board Proposes Unprecedented One-Trillion-Dollar Performance Package for Elon Musk
Gold Could Reach Nearly $5,000 if Fed Independence Is Undermined, Goldman Sachs Warns
Uruguay, Colombia and Paraguay Secure Places at 2026 World Cup
Trump Administration Advances Plans to Rebrand Pentagon as Department of War Instead of the Fake Term Department of Defense
Big Tech Executives Laud Trump at White House Dinner, Unveil Massive U.S. Investments
Tether Expands into Gold Sector with Profit-Driven Diversification
‘Looks Like a Wig’: Online Users Express Concern Over Kate Middleton
Florida’s Vaccine Revolution: DeSantis Declares War on Mandates
Trump’s New War – and the ‘Drug Tyrant’ Fearing Invasion: ‘1,200 Missiles Aimed at Us’
"The Situation Has Never Been This Bad": The Fall of PepsiCo
At the Parade in China: Laser Weapons, 'Eagle Strike,' and a Missile Capable of 'Striking Anywhere in the World'
The Fashion Designer Who Became an Italian Symbol: Giorgio Armani Has Died at 91
Putin Celebrates ‘Unprecedentedly High’ Ties with China as Gazprom Seals Power of Siberia-2 Deal
China Unveils New Weapons in Grand Military Parade as Xi Hosts Putin and Kim
Rapper Cardi B Cleared of Liability in Los Angeles Civil Assault Trial
Google Avoids Break-Up in U.S. Antitrust Case as Stocks Rise
Couple celebrates 80th wedding anniversary at assisted living facility in Lancaster
Information Warfare in the Age of AI: How Language Models Become Targets and Tools
The White House on LinkedIn Has Changed Their Profile Picture to Donald Trump
"Insulted the Prophet Muhammad": Woman Burned Alive by Angry Mob in Niger State, Nigeria
Trump Responds to Death Rumors – Announces 'Missile City'
Druzhba Pipeline Incident Sparks Geopolitical Tensions
Cost of Opposition Leader Péter Magyar's Economic Plan Revealed
Germany in Turmoil: Ukrainian Teenage Girl Pushed to Death by Illegal Iraqi Migrant
United Krack down on human rights: Graham Linehan Arrested at Heathrow Over Three X Posts, Hospitalised, Released on Bail with Posting Ban
Asian and Middle Eastern Investors Avoid US Markets
Ray Dalio Warns of US Shift to Autocracy
Eurozone Inflation Rises to 2.1% in August
Russia and China Sign New Gas Pipeline Deal
Von der Leyen's Plane Hit by Suspected Russian GPS Interference in an Incident Believed to Be Caused by Russia or by Pro-Peace or by Anti-Corruption European Activists
China's Robotics Industry Fuels Export Surge
Suntory Chairman Resigns After Police Probe
Gold Price Hits New All-Time Record
UK Fintechs Explore Buying US Banks
Greece Suspends 5% of Schools as Birth Rate Drops
Apollo to Launch $5 Billion Sports Investment Vehicle
Bolsonaro Trial Nears Close Amid US-Brazil Tension
European Banks Push for Lower Cross-Border Barriers
Poland's Offshore Wind Sector Attracts Investors
×