Wilfried Fuhrmann: "Coronacrisis pandemic could cause crisis in eurozone and EU"

 Wilfried Fuhrmann: "Coronacrisis pandemic could cause crisis in eurozone and EU"

The number of COVID-19 deaths in Germany has reached 8.5 thousand, the number of cases exceeds 181 thousand, according to the Robert Koch Institute, the country's public health institution. Most infections were reported in Bavaria, North Rhine-Westphalia and Baden-Württemberg. German professor of macroeconomics from Potsdam Wilfried Fuhrmann told Vestnik Kavkaza about the socio-economic impact of the pandemic.

- Now there is a widespread political debate about the economic impact of the pandemic. How appropriate is it?

- This is inevitable, because the general quarantine regime is linked to the growing risks of a social explosion. Quarantine triggers very high social and economic impacts every day, which have resulted in impoverishment and collapse of the health system. The measures taken are not well thought out. At first, it was difficult to understand why hairdressing, shoe and furniture stores or schools were closed in northern Germany, for example, in Kiel and Rostock, if the virus that got into this region from China, Austria or Italy was found only in the south of the country - in Bavaria. The introduction of quarantine in certain regions of federally structured Germany would be more appropriate. This would allow limiting itself to lower costs than under a centralized federal quarantine regime. But the media and politicians called for uniform rules, although the advantage of the federal structure is precisely not in uniform, but in regional decisions. Similarly, borders are always politically customizable protective barriers. But the internal EU borders remained open to passengers and goods.

The pressure from politicians and business circles to weaken quarantine rules intensifies as the duration of the measures increases. For example, the chairman of some party announced the end of support for government measures after four weeks, because restrictions on fundamental rights were no longer justified.

At the same time, many people's trust in centralized politics, as well as in statistics, is declining by the day, and the support for conspiracy theories is increasing. More and more politicians and citizens are demanding the restoration of the freedoms that existed before the quarantine regime and related restrictions. People demand unlimited freedom of movement and assembly, the right to work and travel. And this requires the resumption of all suspended or prohibited economic and social activities.

All over the world, they draw parallels with protests in many U.S. states against general isolation for the right to work permanently without restrictions. More and more people (about 20-50% of the population) fear for their economic future. In some countries, the situation is exacerbated to such an extent that, for example, the Government of the Republic of South Africa fears an outbreak of food rioting. The situation in the poor neighborhoods of Rio is just as unbearable. The daily death toll is enormous and continues to increase, tests are practically not carried out, and the health system has partially collapsed. There are horrible conditions and great hopelessness prevailing in many developing countries.

- How does Germany plan to emerge from isolation?

- Germany's politicians, especially prime ministers of the federal states, are increasingly voicing ideas about easing quarantine, thereby creating political pressure on the central authorities. The German Chancellor criticized this "discussion orgies n relaxing curbs" (Merkel's statement on April 20, 2018), and at the same time felt that she was losing the ability to centrally coordinate the process. Now the responsibility for all concessions lies with the federal states, and new concessions are approved by individual federal states every day. Therefore, this is a spasmodic process, not gradual.

At the same time, the cases confirmed by tests vary greatly by region: their number is much higher in infection centers, populated by carefree young people, than in rural areas and in the north.

Economic considerations are also gaining strength in various regions - the pressure from tourism, transport, restaurant and pub owners, culture, the automotive and sports industries increases every day. With such regional diversity, centralized mitigation of quarantine measures is not suitable for Germany. The centralized nationwide blockage imposed on March 23, 2020 was also a big mistake, causing an increase in social and economic costs.

- Thus, the government and politicians are bringing the country back to normal?

- Yes, but problems remain. Calls for responsible behavior are becoming less effective. In order to be able to assess the risk, each district should publish daily data on the number of conducted tests, the number of infected people, the number of those who were discharged and recovered, and the number of deaths. However, this is not the case. Previously, data on confirmed new cases were also not very significant, since the number of tests performed was not indicated. Meanwhile, the number of tests is the same "political" corrective factor.

Politicians see proper compliance with the rules of distance and hygiene as a protection against the infection. Nevertheless, this does not correspond to the modern realities and is not properly controlled; non-compliance with the rules is not subject to actual sanctions. It's like these measures are fake.

There is still a gap between those who are at risk and those who are not. Residents of nursing homes and rehabilitation centers want to see visitors, but at the same time are forced to fear their visitors and guardians.

It would seem that the new standards should imply greater hygiene and greater personal responsibility. But it's different in reality - more and more young people are observing these rules less and less. They are defiantly uninformed and recklessly risk the lives of third parties. The growing international competitive pressure, as well as the desire to travel and have fun, are pushing us towards the old way of life. We will have to get used to the deeper separation between young and old people, to the progressive type of socialization of children and older people, as well as to the parent generation's further focusing on the labor market.

- But still, is the forecast positive in general?

- Of course! Hopes are linked to the fact that the immune system is usually strengthened in the summer, as well as to the expansion of medical knowledge about the virus treatment. This includes antibody tests and their use, knowledge gained from studies that many coronavirus patients died of a pulmonary embolism, not from pneumonia. In this case, drugs to treat thrombosis and blood thinners can be useful in treating the viral disease, and can be administered prophylactically, but with the risk of bleeding. And there is  real hope for a vaccine.

Economic difficulties are becoming more apparent. Extensive financial assistance is provided to companies and households. Everything is funded by loans, so Germany’s debt ratio will rise from 60% to 100-120%. Let me remind you that in the conditions of the 2008 financial crisis, it rose to 80%. Germany benefits from a black zero policy [the black zero policy refers to the strategic goal of Angela Merkel's cabinet to minimize the country's external debt as successfully as possible over the past decade - VK] in the form of a low-risk premium on international financial markets. Other countries - Italy, Spain and Greece - with their expansive fiscal policies haven't done this before, so they would like to finance their programs through the European Central Bank and EU borrowing. Here is the inconsistency and fragmentation of the eurozone - in financial policy, as well as in national mechanisms and human behavior. Perhaps, parallel currencies will become necessary in the euro area.

At the same time, tax revenues and contributions to social insurance funds and reserves are reduced very sharply. They will have to get into debt, reduce the volume of public goods provided, switch to online services.

An attempt to support private macroeconomic demand is possible only for a limited time. German programs act as incentive programs in all other EU countries through Germany's demand for imported goods. But under the slogan of "solidarity" they require more (unconditional) assistance and transfers, so this coronavirus crisis could cause a crisis in the eurozone and the EU.

The financial assistance provided by the German government is mainly offered as active public investment (as in France) - this is a step in the direction of controlled economy. At the same time, an EU-controlled industrial policy is being put forward with loan-funded support programs, as well as corporate mergers (for example, in the aviation and railway sectors) that push investments to a politically desirable type of environmental and geopolitical orientation.

The potential for new political control as a result of the crisis is probably too tempting. The coronavirus, eurozone and climate crisises "merge" and fuel the new conspiracy theories amid numerous changes in the systems of production, consumption and payment.

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