Wilfried Fuhrmann: “Economic sanctions should be eased immediately amid pandemic”

Wilfried Fuhrmann: “Economic sanctions should be eased immediately amid pandemic”

Yesterday in Germany, coronavirus was found in 851 people. Thus, the number of infected reached 132 210 people, recovered - 72 600, the dead - 3 495, and Germany was in fourth place in the world in the number of infected. Coronacrisis was a real shock to the global economy, unbalancing the system, said Wilfried Furman, a professor of macroeconomics from Potsdam, in an interview with Vestnik Kavkaza. In his opinion, the viral wave will end when each person is infected, after which he will survive or die. In an extreme scenario, no one can escape the virus.

- How to avoid an extreme scenario?

- One can hope, firstly, for the development of a vaccine, and here the issue of research funding plays an important role; secondly, to reduce personal contacts in order to avoid infection; thirdly, on collective immunity. But even in the case of 70-80 percent coverage of collective immunity, it will not protect all people in society. This happens with known types of flu. There will be many more deaths. Even if we take the low mortality rate of 0.1% of the population as a basis, in Germany more than 80 thousand people will die. In Germany, the flu wave of 2017-2018 claimed 20 thousand more lives than usual. Such a large number of deaths was probably the result of austerity. Holders of state insurance were given an old vaccine. And with the current crisis, vaccines are not expected for a long time. In order to protect against such long-lasting consequences of incorrect decisions based on momentary political considerations, a policy bound to certain rules is needed.

- Thus, the situation will remain catastrophic even if the vaccine is available in a year. What basic conditions can alleviate this catastrophe?

- Firstly, knowing about the aggressiveness and duration of the “coronacrisis”, every citizen must observe protective measures. I associate a relatively small number of deaths in Germany with a certain discipline, high fines for violations, small families, and a less “tight” life than in Spain, Italy, and France. The rules of social distance are not only for personal protection, but also to reduce the spread of the virus.

Secondly, the number of deaths also depends on preventive policies to protect the population. Like most countries, Germany did not (and still does not) provide adequate protection against infections even to doctors and staff in hospitals and nursing homes. Virtually no protection was provided for the police and ordinary citizens. There are no respirators, goggles and suits, disinfectants, oxygen masks, and this is four and a half months after everyone heard the first messages and warnings!

The crisis prevention in Germany was not just inadequate, it simply did not exist. Savings on the health care system began under the government of Gerhard Schroeder and continued under Chancellor Angela Merkel. It turns out that political responsibility does not exist! Since SARS in 2003, everyone knew that the next crisis would come, it was just not known exactly when. Such a public good as the "protection of life support" is steadily declining. In terms of political priority, it lagged far behind EU-oriented policies, geopolitical struggles and short-term welfare. The European Union also did not demand and did not warn about the need to develop a crisis policy. The EU failed - it did not even consider prevention as an important goal, although it is known that the poorer cannot protect themselves.

Continuous crisis prevention requires a new independent institution or body that must be adequately funded and whose tasks can only be carried out by specialists without politicization. The costs of this institution will make up only a small part of the costs currently incurred (without prevention).

- What are the ways out of the crisis?

- The way out of the crisis in China is different than in Western countries. The best strategy for starting a vaccine-free virus epidemic is to quickly identify the infected and organize their quarantine. Now the Wuhan quarantine region is allowed to leave only to those who survived the COVID-19 virus. Hubei Province will be fully open for departure only after the last citizen or a significant percentage - 80% - is cured, vaccinated or dies. This is the result of an imminent infection in a cordoned province or in specific areas. Only gradually will areas that are 80% or more not infected be discovered, which will gradually reduce the remaining quarantine area. This gradual reintegration of Hubei Province is China's exit strategy. However, it will take a long time, there will be many more deaths. Vaccinations and tests covering a large part of the territory, as well as the need to wear protective masks, remain valid throughout the year.

Western countries cannot take this path due to lack of equipment, tests, protective equipment. They want to gain time by limiting contacts and introducing home quarantine. Respirators cannot be prescribed by law due to lack of stocks / production, therefore their protective function is called into question. Hand washing is the solution due to a lack of disinfectants, and testing only when symptoms of the disease appear also fits into a "deficit logic" - there are not enough tests, measuring instruments, or staff. In the absence of preventive measures, Germany and other Western countries must follow the path of gradual infection.

It is hard to imagine that the PRC president was serious about completely infecting China, that is, 1.4 billion citizens. Because infecting all of China would mean 100 times more deaths. What a cruel strategy this would be! However, Germany and other EU countries choose this strategy, as well as the United States and many countries. How cruel would it be to keep the internal borders of the EU open, how many additional deaths could Germany have? At the same time, a comparative statistical analysis is hardly possible due to various definitions and thoroughness in the collection of information. The Coronacrisis has revealed the positive protective role of borders. From a medical point of view, the crisis can only be resolved at the regional or national level (only in this way could the pandemic develop in China and through it, as well as with the immediate cessation of international passenger traffic).

- What can you say about the economic and financial crisis caused by the pandemic?

- First of all, I think about developing countries. Their health systems are overloaded even during normal times, so people, especially the poor and those living in disadvantaged areas, have been hit hard. Many of these countries will quickly face serious balance of payments problems due to capital outflows and massive outflows of foreign capital, and many will become insolvent or have already become them (not only in Argentina). In the framework of the so-called economic restructuring in industrialized countries, the importance of developing countries in the international value chains and the international division of labor will decrease. They will roll back even further.

I think the debts of these countries should be written off. All international development banks must again issue loans and free aid, which can be provided by no less than 50 percent only for projects with international participation. In addition, bilateral partnerships will be helpful. For example, Germany and Namibia can issue joint bonds in the capital market, so that the partner country benefits from a low risk premium from a partner from an industrial country and thus receives cheaper capital for development. Otherwise, many will be dependent on China.

In my opinion, the most important thing in the short and medium term is to reduce the birth rate, which can be achieved through education and family planning, possibly also contrary to church policies. Because illness, death, and a drop in per capita incomes can lead to social unrest and, therefore, drop some countries to the level of a “failed state.”

- Are there common global effects?

- I think it is necessary to look at two areas here. First, company valuations (stock prices, etc.) plummeted. The players on the stock exchanges were stunned, not knowing how to react in prices for news about the coronavirus. Stock exchanges were supposed to suspend price fixing for several days or daily, for example, for three hours at lunch time. Governments were required to provide information on the status of their planned policies and the framework for their implementation. The pre-warning period before the large-scale outbreak of the “coronacrisis” was not used in all countries to reassure and harmonize preliminary information with rapidly responding global financial markets. For example, the ECB was supposed to cancel the negative interest rate back in December.

Now low ratings can and will lead to the acquisition and takeover of companies. On the one hand, family-owned enterprises and start-ups have great difficulty obtaining capital and may become insolvent or migrate. On the other hand, the United States (in particular, rich IT and telecommunications companies, private equity funds, asset management companies, billionaires) will be able to more easily buy technology companies and win in the long run at the expense of EU countries.

At the international level, the crisis exacerbates the shortage of capital and, therefore, competition for capital and billionaires. Prior to this, some countries and the EU will try to defend themselves - including through stronger centralization, the central industrial policy of the EU, increased public investment in company equity and intervention in market economy decisions. Many politicians require additional powers - legislative and at the same time executive rights and opportunities. They contribute to dedemocratization, which is probably never completely reversible. Coronavirus is politically instrumentalized to become a virus for democracy. This is an extremely dangerous process.

Secondly, with regard to the so-called real sector, I assume that real GDP in Germany will fall by 10% this year, although many have switched to remote work. But the loss of income (total loss) for three to four months is not refundable in many areas (tourism and air traffic, engineering, etc.).

Many companies go bankrupt and may be buying up. Value chains and collapsing international sales markets, despite the growth of online commerce and parcel delivery, also have a negative impact. Investment demand in Germany (including foreign demand for German investment goods and, consequently, exports) will also be significantly lower due to global uncertainty at the beginning of the economic recovery. International competition will become tougher. Deindustrialization in Germany will continue. Real return on investment remains too low globally. The share of productive jobs is likely to decrease, despite future structural changes. Unemployment will increase. With declining wealth and declining savings, poverty will increase in old age. The economic influence of the state will increase due to loans and the proposed state share capital (a kind of partial nationalization). The degree of concentration of companies and assets will increase.

The international competitiveness of the EU economy as a whole will continue to decline, despite the growing debt for the so-called "reconstruction of the economy." With increasing international competition for capital and billionaires, international tax competition will increase (with tax cuts for companies and investors), as well as government subsidies (which will result in distorted competition).

To keep the EU in its current form, the German economy should be strengthened by state support for the labor market (short-term job benefits, etc.), a large amount of new debt to support liquidity, subsidies, loans and capital, as well as as much as possible Quick cancellation of the ban on contacts.

- How do major economic powers survive the crisis?

- By strengthening. China, with its early start and willingness to make long-term commitments, will receive an additional market share worldwide, especially in Africa, Europe and South America. The US will attract capital from around the world as a "safe haven." With their tremendous financial strength and great flexibility, combined with pragmatism after the crisis, they will experience a strong rise with the development of industrialization. The US will continue to successfully use access to its markets as a geopolitical tool. The Russian Federation, like many other oil exporting countries, suffers from coronavirus and falling prices in international oil markets. These countries are temporarily weakened economically. The continuation of the policy of economic diversification that they are implementing so far and partly very successful is all the more necessary, but at the same time there will be insufficient funds. It is unlikely that it will be possible to avoid raising taxes and reducing social benefits. Expanding economic cooperation with other countries and opening markets with a common sectoral structural policy may be useful and necessary in order to prevent the collapse of small national markets.

In a pandemic, the sanctions imposed are particularly inhuman and destructive for many countries (such as Bulgaria, Italy and Greece) at a new start. They should be immediately weakened, or at least suspended for 2020. The crisis caused by the coronavirus is used to quickly and “silently” achieve strategic goals within the country. For example, the Italian government uses the “coronacrisis” and the economic crisis that already existed to reinforce its call for so-called “crown bonds” in the EU. The German government is implementing internal reforms in this way. Everything that has now to change in the political and economic reorganization and is not completed will be realized in the upcoming environmental crisis.

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