Ifo business climate index falls to record low

Berlin The mood in Germany’s economy is catastrophic. The most important leading indicator, the Ifo business climate index, fell from 85.9 to 74.3 points in April. This is the lowest value ever measured. There has never been a stronger decline. “This is mainly due to the massive deterioration of the current situation,” said Ifo President Clemens Fuest on Friday.

In addition, companies have never been so pessimistic about the coming months. “The corona crisis hits the German economy with full force,” said Fuest. The crisis is now affecting all industries. Even the main construction industry is now worried about the future. So far, together with consumption, it has been the pillar of the economy.

The fact that the effects of the corona-related standstill would hit companies hard in April had become clearer every day since Easter. On Thursday, the Ifo reported that the crisis had hit the labor market: in industry and service providers, one in five companies surveyed by the Ifo want to lay off employees or not to extend temporary jobs.

It is 15 percent in retail, and two percent on construction that has so far been little affected by downtime. In almost all industries, more than 40 percent of companies want to postpone investments – even 31 percent of them are in construction.

How deep the recession will become in 2020 is currently difficult to estimate. “We do not know how much we can start the economy up again without increasing the risk of infection,” Monika Schnitzer told the Handelsblatt. The situation is not comparable to any post-war recession. However, she is confident that Germany will get there in the next few weeks if protective measures are increased and tracing apps are increased.

The purchasing manager index of the IHS Markit institute also fell to a record low on Thursday. In this manager survey, 75 percent of service providers and almost as many industrial managers said that their sales had shrunk significantly. Service providers’ sales fell more than ever in the 20-year history of this survey.

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“Both domestic and export demand has collapsed,” writes IHS Markit economist Phil Smith. In the service sector, more jobs were cut than at the height of the financial crisis recession in April 2009, and in industry, too, the reduction in personnel accelerated – despite short-time work.

In any case, leading economists are starting to further lower their forecasts for 2020. The head of economic operations, Lars Feld, now expects that gross domestic product (GDP) will shrink by at least five and a half percentage points in 2020. It could shrink more than in the 2009 financial crisis recession.

Three and a half weeks ago, when the Economic Advisory Council for Economic Affairs Peter Altmaier (CDU) presented a special report on the corona pandemic, a minus of five and a half percent was still the worst-case scenario. However, the IMF expects German GDP to collapse by seven percent in 2020.

Even in the large economic research institutes, which predicted a minus of 4.2 percent for 2020 in their joint diagnosis two weeks ago, many expect that a five will be before the decimal point. The markets are therefore eagerly awaiting which recession forecast the Federal Government will commit to in the coming week.

However, Stefan Kooths, economic expert at the Kiel IfW, also warned that he would now outdo himself in horror scenarios: that April would be the low point of the year and that GDP would decline by ten percent in the second quarter, he said in early March already expected. The question now is how quickly a recovery can begin.

France: lowest since 1980

However, this also depends on how quickly the economy in the EU countries most affected by the pandemic can get going again, Italy, Spain and France. “As intertwined as our economy, for example, with that in Italy, we have to be very interested in the EU not breaking apart,” said Schnitzer. “It is not just about solidarity, it is in our interest if we help other EU countries,” she emphasized.

However, the prospects for the economy are currently catastrophic in all large EU countries. For example, the IHS Markit Purchasing Managers’ Index fell to a record low for the euro zone on Thursday. In Italy, the IMF expects GDP to decline 9.1 percent this year.

The mood in France’s economy also deteriorated massively in April due to the corona crisis. The business climate has dropped to the lowest level since the start of the surveys in 1980, according to data from the national statistical office Insee on Thursday. The index fell by 32 points to 62 points. There has never been such a sharp drop.

Economic activity in France was 35 percent lower in April than it was before the economy shutdown in March. Insee also does not expect the business climate to recover anytime soon. In this unprecedented environment, the behavior of companies and consumers can hardly be predicted. The French government expects gross domestic product to decline by eight percent this year.

More: According to the Ifo Institute, a fifth of German companies are planning to cut jobs due to the corona crisis.

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Why India’s workers are protesting the government

Bangkok They are not supposed to leave their homes, but the women in the Indian metropolis of Amritsar have an important message: Given the curfew in their country that has been going on for a month, they are running out of food. As a sign of protest, they put empty plates and pots in the air.

Most of the women belong to migrant worker families who are unable to earn money during the lockdown. To make ends meet, they rely primarily on the support of private benefactors.

Resistance to the situation is growing nationwide in India. It mainly comes from people who have difficulty earning enough money to eat and stay at normal times – and are now particularly suffering from strict anti-corona policies. They feel let down by Prime Minister Narendra Modi and go on the barricades.

Leftist union leader Tapan Sen called for a nationwide protest against Modi’s policy last Tuesday. “We have heard enough from you,” he said to the Prime Minister. “Now listen to us!” He asked Modi.

Photos of the action, organized by Tapan’s Center of Indian Trade Unions, showed people in several cities stepping outside their homes with protest posters. “The government is idle and numb when it comes to workers’ suffering,” the union said in a statement.

Protests against the Indian government

Leftist union leader Tapan Sen called for a nationwide protest against Modi’s policy last Tuesday.

(Photo: AFP)

Since March 25, public life in India has been almost completely paralyzed. The country’s almost 1.4 billion inhabitants are only allowed to go out if they have a legitimate reason to do so – for example, buying food and medicine is allowed, and some businesses have recently been allowed to reopen. For the time being, Modi does not want to allow any more to slow the spread of the coronavirus. As of Friday, the country counted almost 25,000 cases.

Massive economic problems in the informal sector

It was clear from the start that the restrictions for the hundreds of millions of Indians working in the informal sector would lead to massive economic problems. The International Labor Organization (ILO) warned that 400 million workers in India could fall deeper into poverty due to the lack of earning opportunities.

With many reports of the low-income plight, Modi made a public apology for understanding the strict measures. But when he extended the curfew, which was originally scheduled to run for three weeks and was due to expire in mid-April, to early May, many people lost patience.

There were chaotic scenes at a train station in the financial metropolis of Mumbai: Thousands of workers, originally from other parts of the country, gathered and called for opportunities to return to their homeland. So far, these have not been granted – travel between the states is currently not permitted.

The government promises not to leave the workers alone. “We don’t want anyone to go hungry,” said Finance Minister Nirmala Sitharaman when she launched a $ 23 billion aid package to help low-income earners.

But many people in need have so far been left empty-handed. In a survey by Indian media among thousands of migrant workers, more than 90 percent said they had received no food rations – and two thirds of them had less than the equivalent of 2.50 euros.

Observers warn of the social explosives in the situation: “There are many complaints,” commented economics professor Indira Hirway, who teaches in Modi’s homeland Gujarat. She believes: “If the government doesn’t change its policies, it could lead to unrest and tremendous misery.”

More: Poverty reduction in India is facing a severe setback. Read more here.

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Despite huge aid, economists do not anticipate inflation for the time being

inflation

Economists do not expect prices to rise in a timely manner.

(Photo: dpa)

Munich Regardless of gigantic government spending, economists do not anticipate a surge in inflation in the Corona crisis for the time being – on the contrary, falling prices. A key factor in this is the drop in oil prices, according to several economists.

“In view of the severity of the current recession and against the background of the extremely sharp drop in oil prices, consumer price inflation should be significantly lower on average in 2020 than in the previous year,” says Michael Menhart, chief economist at the world’s largest reinsurer Munich Re. “I suspect that the corona crisis will lead to deflation,” says Markus Demary, Senior Economist for Monetary Policy and Financial Markets at the Cologne Institute for Economic Research.

“In the short term, the Covid 19 crisis is likely to have a deflationary effect,” says Katharina Utermöhl, Senior Economist responsible for Europe alliance. Europe’s leading insurer expects an extremely low price increase of 0.2 percent for 2020 in the euro area, and an inflation rate of 1.6 percent for 2021. BayernLB chief economist Jürgen Michels shares his colleagues’ assessments: “In the short term, I can clearly see that the pressure on prices is going down – also because of the oil price trend.”

Not only the governments, but also the companies will be sitting on mountains of debt after the crisis. “This debt has to be reduced and the debt reduction has priority over new investments for a certain time,” says IW money market specialist Demary. “Due to the reluctance to invest, demand is lacking, causing price growth to stagnate.”

Two of several other factors that Demary names: risk aversion and presumably subdued demand for the end of the pandemic. “Companies and households are more likely not to invest, but to wait and see that the uncertainty falls.”

Mountains of debt become the sticking point

And what about the end of the crisis? That depends on the extent and pace of the subsequent recovery, as Munich Re chief economist Menhart says – “although we are currently not assuming a fundamental change in the inflation outlook and therefore expect inflation rates to be roughly pre-crisis levels.”

However, like lawyers, economists analyze a variety of factors in their assessments. Some of these factors could well lead to a return in inflation. “But as soon as the crisis is over, dealing with the accumulated mountains of debt could turn out to be a sticking point,” says Allianz economist Utermöhl.

Experience from the financial crisis had shown that the resulting debt has not been reduced in many countries. “On the contrary: global debt has reached a new record high in 2019,” says the economist. “Since there will hardly be any productivity boost in the near future, I assume that the second path will ultimately be taken” – ie inflation.

Munich Re chief economist Menhart points to another point: “However, there are risks of higher inflation especially if, with normalizing economic demand, companies are unable to restart production sufficiently quickly.”

BayernLB chief economist Michels also believes that inflation can return. “In the medium term, I see a certain risk that inflation could go up, but only when we are economically back to the level we had before the crisis.” According to Michel’s assessment, this could only be the case in 2022/23.

“We noticed in the Corona crisis that we had too few reserves for many things,” says the Munich economist. “If we have a higher level of storage again, it costs money. And if you can no longer rely on international supply chains, production may be more local, but more expensive. These two factors could drive prices up. ”

More: Fluctuations on the stock exchanges are extreme due to the Covid 19 pandemic. But there is a way out: alternative investments. The Handelsblatt presents them.

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US government is considering state ownership of energy companies

Oil price

US companies are under pressure due to the low oil price.


(Photo: Reuters)

Washington The US government is considering state participation in American energy companies, which are under pressure due to low oil prices. “We’re considering a number of alternatives,” said Treasury Secretary Steven Mnuchin in Washington on Thursday (local time). “You can assume that this is one of the alternatives.”

President Donald Trump also said he wanted to help the industry. He suggested that the government could buy both fuel for the country and plane tickets in advance. “The energy business is very important to me and we will build it up,” Trump said. The United States is the largest consumer of oil and can buy the raw material at a high price.

The unprecedented drop in the price of oil at the beginning of the week is now the subject of investigations by the US derivatives regulator (CFTC). “In such a situation, we look at all possible explanations,” said CFTC commissioner Dan Berkovitz of the Reuters news agency. Because of the extreme price fluctuations, you will take a closer look this time.

The oil price had dropped by about $ 40 a barrel within 30 minutes, and for the first time the price of US oil fell into the red. Because of the corona crisis – which should lead to a global recession – there is currently much less demand for the raw material.

More: The drop in oil prices is a warning sign for the global economy. A comment.

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This is how the world looks at Germany

Dusseldorf The “New York Times” suggests Angela Merkel in a comment for the office of the US Vice President. The political and social magazine “The Atlantic” praises the German chancellor as a considered political and scientific leader. In Japan and Great Britain the German example is used again and again these days to draw attention to the mistakes in their own country.

Corona times are times when comparing countries. And in these comparisons, Germany, with its relatively low number of corona deaths, despite all the mistakes and inconsistencies in the small, does well worldwide. And Angela Merkel is becoming a kind of savior of the corona crisis. “If you can say about any country in Europe that it has had a good corona crisis so far, it is Germany,” says the British magazine “The Economist”. The successes in fighting the crisis are undeniable.

The success factors that are identified abroad: The Chancellor with her scientific meticulousness and empathetic leadership. The powerful German healthcare system and the high intensity of corona tests in international comparison. The social system and short-time work benefits have also become a model for many.

The broad industrial company base is perceived as the country’s strength. Federalism is also one of the country’s strengths, at least when viewed from abroad, because the decentralized structures would have led to quick action. The only point of criticism, especially in southern Europe: Germany lacks European solidarity.

“The Atlantic” praises the Chancellor as calmly, analytically and yet not emotionlessly preparing the Germans for the dangers. With a “blood-sweat-and-tear-speech” she had left the whole country behind and silenced the internal opponents.

Merkel as a savior

Even Trump, U.S. President Donald Trump, who didn’t even want to shake hands three years ago, has become remarkably silent when it comes to criticizing Germany. Merkel is addressing “the brain of a scientist and the heart of a pastor’s daughter” to the population, says political professor Timothy Garton Ash in the British “Guardian”.

In Japan, Merkel’s leadership style is also seen as empathetic, in contrast to that of Prime Minister Shinzo Abe, whose popularity is declining. The Chancellor not only gave good speeches, but also delivered results, said Yukio Noguchi, a consultant at Waseda University’s Corporate Finance Research Center, in a column in the Money Gendai business publication.

Abe, on the other hand, had promised just two protective masks to every household as part of his rescue package, an action that even ultra-conservative fellow travelers were upset about. He is completely indifferent to people’s fears – especially when compared to Merkel, says Noguchi. On April 12, he even put a video online, titled: “I can relax at home with my dog.”

Japanese media also praise the flexibility of business and administration to quickly switch to home office work. In Japan, many companies are not really able to switch to telework on a large scale.

Angela Merkel

Stoic calm as a trademark.

(Photo: AP)

In Canada, the media praised Merkel’s “trademark phlegmatic style” – “the stoic calm that is her trademark”. The “Globe” comments: “A large number of Germans breathed a sigh of relief that Ms. Merkel is still responsible.”

The chancellor, who studied physics and quantum chemistry, tackled the problems with the “cool and judgmental eye” of a scientist. The fact that she is now warning against lifting the restrictions too quickly and her warning to proceed slowly and with caution is also recorded in Canada.

The densely populated Germany, surrounded by countries with rapidly increasing death rates, should have experienced a catastrophic crisis, judges the “Financial Post”. “But science-based politics has helped steer the crisis better than most.” The newspaper also appreciates the high number of Covid tests that are carried out in Germany.

In Italy, the Chancellor’s press conference, in which she explained the spread of the corona virus in three sentences, was given English subtitles, becoming a click favorite on social media. In the Italian vocabulary there is now the verb “Merkeln” and it is not meant negatively.

In Austria, the media praised Merkel’s speech in the Bundestag this week with her statement “This pandemic is a democratic imposition” on the decision to restrict freedom rights in Germany.

Commentators miss this attitude among the black and green government in Austria under Chancellor Sebastian Kurz (ÖVP). “While Merkel speaks almost apologetically, the government appearances in Austria remind of teachers who teach the people the rules, but which should not be questioned,” criticized the newspaper “Die Presse”.

The German model student

The Italian commentator Emiliano Fittipaldi sums up Germany’s standing in a nutshell: “When dealing with the corona crisis, our German cousins ​​trumped us. They have shown a better organization of the medical emergency, they have a political leadership who is nationally and regionally competent and they have a functioning chain of command ”- all that Italy is missing.

Mexico sees Germany as a prime example of fighting pandemics. The Mexican Vice Minister of Health, Hugo López-Gatell, repeatedly emphasizes Germany and in particular the Robert Koch Institute when he talks about an exemplary fight against the virus. He even reports in his tweets that he asked the RKI about quick tests and how to do them in Germany.

Germany is also considered a model Corona pupil in Great Britain, which the government should emulate. The approaches of the two countries and the death statistics are compared directly in newspapers and television programs. The result worries Prime Minister Boris Johnson’s government. If you want to appeal to a British minister, all you have to do is mention the Germans, the Financial Times noted.

British Health Minister Matt Hancock

Johnson’s medical advisor Chris Whitty admits that one can learn from Germany especially by mass testing. Health minister Matt Hancock recently stated jealously that his colleague Jens Spahn could call hundreds of laboratories to have samples tested because the German pharmaceutical industry was so strong.

He was immediately informed that Germany’s political system was also superior. The decentralization of the Federal Republic had proven to be an advantage in the crisis, commented the “Guardian”.

Germany has more tests, more intensive care beds, more ventilators – and significantly fewer deaths. Tony Blair’s former spokesman Alastair Campbell said on Twitter: “You hit us again.”

The fact that Germany is now loosening the exit restrictions is astonishing in Great Britain. Some see it as evidence that Germany has the pandemic under control. Because of the testing, the federal government “has a better picture of what is happening, so they can now open up a bit,” said BBC editor Gabriel Gatehouse on the “Newsnight” program.

Others, however, are wondering why the otherwise level-headed Germans act so hastily. Germany succumbed to the “curse of the winner”, commented “Daily Telegraph” columnist Ambrose Evans-Pritchard. The low death toll created a “deceptive feeling of security”. However, this increases the risk of a second wave.

In Russia, the discipline of the Germans regarding the restrictions to contain the virus in the media is presented as exemplary. The first opening of shops this week caused a wow effect when the Berlin correspondent of the state broadcaster “Rossija-1” was switched on from a shoe store to the talk show “60 Minuten” by the Duma MP Pyotr Tolstoy. He explained to the studio guests that Germany could afford to loosen the hard insulation measures step by step due to the now low number of infections.

Old stereotypes falter in France

In France, the image of Germany in the Covid 19 crisis is changing as strongly as it has been for a long time. Before the epidemic, the Federal Republic was considered by many to be a country that was economically successful, but also thanks to its high export surpluses, low wages and precarious working conditions as well as significantly poorer social protection than in France. For weeks now, the French have been comparing the numbers of those infected and those who died from the coronavirus and have found that things are looking much better in the Federal Republic, at least so far.

“Germany gets along much better with the corona virus than France,” wrote Laurent Joffrin, editor-in-chief of the left-liberal daily Libération. The reasons for this would overthrow old prejudices: “In France we often fool or praise German discipline, but our neighbor has by no means imposed as stringent exit restrictions as we have … which is particularly bad for our leftists because of its” ordoliberalism ” Germany has better equipped its health care system than we have. ”

The neighbors, who are cried for budgetary severity, have also provided around a trillion euros in one fell swoop to support the economy. “Our supposed certainties are shaken,” concludes Joffrin.

French President Emmanuel Macron

Similar things can be read in the left-liberal “Le Monde” or in the conservative “Le Figaro”. It is not the case that a special enthusiasm for Germany has broken out. But you look closely and in great detail, sometimes on several pages, to see what your neighbor is doing differently. The French pay tribute not only to the German health care system, but also to federalism, which responded quickly to local conditions, and the strength of German industry.

“Short-time work benefits” and “statutory health insurance” are also discussed extensively in the US media, where the number of unemployed rose by 27 million within five weeks – and many people automatically lost their health insurance as a result.

The German model is even shown to be superior in Silicon Valley today: “Germany decided at some point to recruit talent, give them training and jobs,” says Salman Ullah, co-founder and managing director at Merus Capital in Palo Alto, the Handelsblatt.

“The short-time working system works, people are not afraid to lose their health insurance, the overall stress level in the population is significantly lower than in the USA. This state substructure is now showing its full strength in the crisis, ”analyzes Ullah, who has already invested in five German startups.

Criticism from Italy and Greece

Germany’s image is not always so positive at the moment: lurid anti-German headlines and Nazi cartoons appear almost every day in the right-wing media in Italy. Berlin has traditionally been the scapegoat in the discussion about reducing Italy’s high debts and in appealing for more budget discipline.

This is the case again in the discussion about the introduction of corona bonds. The old stereotypes of the frugal north, which insists on the rules, and the spending-friendly south, which wants its debts to be financed by the other partners, are coming up again.

“Nobody has to act as the best in class,” said Prime Minister Giuseppe Conte with regard to Berlin and criticized the German trade surplus. However, no aid was reported from Germany.

After all, seven tons of relief supplies were delivered and the Air Force flew 43 seriously ill Corona people to Germany for treatment and paid for the treatment. The right-wing national Lega in particular is fueling resentment. “When it comes to Germany, the memory is often short and the analysis, more often, rough,” comments “la Repubblica”.

In Greece, the media are very concerned about European crisis financing. “The pandemic is reviving the north-south division in Europe,” comments the newspaper “Kathimerini”. Above all, Germany’s refusal to support the less creditworthy southern states such as Greece with jointly issued euro bonds is causing bad blood – a topic that sparked discord between Athens and Berlin even during the Greek debt crisis.

Greek Prime Minister Kyriakos Mitsotakis

Left-wing politician Alexis Tsipras, the former prime minister and current opposition leader, falls back into his old role and accuses Merkel of wanting to miss out on a savings corset across Europe in the Corona crisis. But the image of Germany in the Greek public is now more differentiated. How the violent political upheavals of the crisis years in the face of the corona threat have given way to a reflection on what is really important.

While the Netherlands is seen as the biggest brake on the euro or corona bonds, Merkel can collect points if, for example, she now promises solidarity in the corona crisis to Germany’s European partners in a union conference. This was recognized in the Greek Gazettes.

Prime Minister Kyriakos Mitsotakis, who has been in office since last July, is also not interested in making the issue of joint debt raising a sticking point. Mitsotakis is happy to leave the role of spokesman to his Italian colleague Giuseppe Conti on this question.

Mitsotakis needs Merkel’s support in the increasingly tense relationship with Turkey and in migration policy. Germany was able to win sympathy with the admission of refugee children from the Greek slum camps.

The topic is also being discussed differently in France. The left in particular accuses the Federal Republic of reacting too hesitantly. For reasons of selfishness or due to improper consideration for the AfD, the German government is shy of Eurobonds or other forms of appropriate solidarity with countries like Spain and Italy that are badly affected by the crisis.

But Yves Bertoncini, President of the European Movement France, opposes this: In a multi-page paper, he shows that solidarity cannot be measured solely by the approval or rejection of Eurobonds. Germany has shown solidarity in the EU for decades and has financed more than a hundred billion euros in transfers through the EU budget.

More: Although the consequences for the economy are dramatic, the UK does not loosen the lockdown. Steps in Germany are observed in part in disbelief and in part with envy.

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Economists expect the ECB to expand its emergency purchase program

According to a Bloomberg survey of economists, the European Central Bank will significantly increase the emergency pandemic bond purchase program in the coming months to support the economy. ECB President Christine Lagarde fears that the region’s gross domestic product could shrink by up to 15 percent this year.

Most of the survey participants expect the ECB to expand the scope of their pandemic buying program by September. The timing – as well as the volume of the increase – will likely be affected by how much more money governments are willing to spend. The European heads of state and government have approved a € 540 billion plan to combat the immediate consequences of the corona virus, but have not been able to agree on a longer-term reconstruction program.

Economists predict that the 750 billion euro contingency plan will be increased by another 500 billion euros. This would bring this year’s total purchases of all programs to over 1.5 trillion euros.

“The ECB has to hold the euro flag up somehow,” said Alastair Winter, economic advisor at Global Alliance Partners. It is a “message not to panic while actually panicking”.

Expectation of further monetary stimulus highlights the central role the ECB has played in trying to contain the continent’s worst economic crisis since World War II. Euro area governments have been slow and reluctant to agree on a common response. Countries like Germany and the Netherlands refuse to share the debt burden of the economically weaker south.

Banks could borrow up to € 750 billion

Survey participants do not expect the ECB to cut interest rates further below zero. The deposit rate is already at a record low of -0.5 percent, and policy makers have expressed concern that a further cut would affect credit supply.

Economists expect banks to borrow around € 750 billion in the remaining four long-term lending transactions – money that will be used to lend to businesses and households.

The Bloomberg survey was conducted ahead of the European Union summit on Thursday, at which Heads of State or Government could not agree on whether stimulus or loan funding should be provided, and asked the Commission to reach a compromise proposal by May 6 to submit.

Lagarde had told them they were in danger of acting too little and too late to mitigate the effects of the virus. According to the baseline scenario of the ECB, the euro area economy shrinks by nine percent, but in an extreme scenario, economic output could decline significantly more.

More: How controversial the ECB is about the measures taken in the corona crisis.

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Brussels rejects federal government plans for travel vouchers

Berlin EU Justice Commissioner Didier Reynders rejects vouchers for canceled trips in the corona crisis. He has now given a clear rejection of the corresponding plans of the federal government. “Member States have to ensure that national decisions are in line with EU law – and that gives consumers the choice between vouchers and reimbursement” Reynders told the “Frankfurter Allgemeine Zeitung”.

The EU Package Travel Directive requires repayments to be made within 14 days. According to the will of the federal government, consumers should receive vouchers instead of an immediate repayment when the trip is canceled. The vouchers are to be limited until the end of 2021. If the customer has not redeemed his voucher by then, the organizer must refund the value.

Justice Minister Christine Lambrecht, Minister of Economic Affairs Peter Altmaier (CDU) and Minister of Finance Olaf Scholz (SPD) had already written to Reynders because a voucher solution would have to be approved by the EU Commission. Several other countries also wanted to contact the Commission.

Altmaier had spoken on Thursday to talks with the EU Commission about a uniform regulation for Europe. The reason: For many travel providers, it would be important to be able to issue vouchers now instead of having to refund the money because of the current crisis and the travel restrictions imposed. In this way, their liquidity can be secured in the crisis, Altmaier told the “Bild” newspaper. For customers who are acutely dependent on repayments, there will be a hardship regulation.

Didier Reynders

The EU Justice Commissioner rejects compulsory vouchers.

(Photo: dapd)

The President of the German Travel Association (DRV), Norbert Fiebig, had recently described the situation of companies in the travel industry as “more than just a threat”. According to the DRV, the travel industry in Germany has to cope with a drop in sales of 4.8 billion euros from mid-March to the end of April alone. 3.5 billion euros are currently flowing out of companies for customer repayments at short notice.

Encouragement instead of commitment

“This leads to an unacceptable economic imbalance,” warned Fiebig. “If Brussels continues to hesitate, the German government will have to take action again and take steps to protect the travel industry very quickly at the national level,” said the DRV President. “If tour operators slip into bankruptcy in large numbers, vacationers will lose a lot of money.”

EU Commissioner Reynders advocated “pragmatic and attractive solutions for companies and consumers”. However, this could only be to encourage consumers to accept vouchers, not to oblige them to do so. Vouchers accepted voluntarily should also be refundable if they were not used and insured against the insolvency of the provider.

The federal government had asked the EU Commission for an exemption from the crisis, since the obligation to reimburse also leads to high cash outflows for airlines because of the almost total collapse in passenger air traffic. To this end, the EU government has presented a detailed proposal with deadlines and hardship regulations. To do this, the EU regulation on passenger rights would have to be changed.

However, the Commission does not want to know anything about a derogation. The FAZ quoted a spokesman for the authority, saying that the legal requirements also apply in unavoidable and extraordinary circumstances, such as those that exist in a pandemic.

More: Read here what consumer advocates think about the voucher solution for canceled trips.

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Asian investors have doubts about the rapid end of the corona crisis

Tokyo

A passer-by in front of a display board of the Tokyo Stock Exchange.

(Photo: AP)

Tokyo Doubts about the rapid development of a corona drug and sobering economic data from the United States put the mood of Asian investors at the end of the week.

In Tokyo, the 225-strong Nikkei index was 0.9 percent lower at 19,262 points in the trade. On a weekly basis, it is 3.2 percent in the red.

Meanwhile, Japanese Minister of Economy Yasutoshi Nishimura is nevertheless optimistic about the government’s new stimulus package. The package in the fight against the consequences of the corona crisis should push the economy strongly. It will increase gross domestic product by about 4.4 percent, said Nishimura on Friday.

The government had raised the stimulus package to a record $ 1.1 trillion. This is intended to expand cash payments to citizens, for example. The coronavirus pandemic threatens to plunge the world’s third largest economy after the United States and China into recession.

Disappointing test results weigh on markets

The courses also fell in China. A report on disappointing test results for the US company’s Remdesivir drug depressed sentiment Gilead in a study in China to treat Covid-19. Gilead said that the study was terminated prematurely due to a lack of participants and was therefore not statistically meaningful.

The fact that reports of corona drugs triggered such strong market movements is an indication of how much investors are looking for signs when the crisis is over, said Tim Ghriskey, chief strategist at Inverness Counsel. “Any bad news should shake the market.”

The country’s Chinese central bank has meanwhile cut another of its key interest rates. The interest rate for medium-term loans will be reduced to 2.95 from 3.15 percent, she said in Beijing on Friday.

Commercial bank loans mature after one year, but can be extended to another two years. The central bank had recently turned the interest rate screw several times to boost the Chinese economy with cheaper money. This contracted by 6.8 percent in the first quarter due to the Corona crisis. This was the first minus since the beginning of the quarterly statistics in 1992.

The pandemic is causing the global economy to collapse. Business activity in the USA fell to a record low in April, and things look bleak in Asia and Europe as well.

In Germany, the Ifo index will be presented in the morning, experts are also expecting a slump here. To keep the US economy alive, the US House of Representatives gave the go-ahead on Thursday for another $ 484 billion aid program. US President Donald Trump said it was possible that the distance rules would have to be extended until the summer.

More: Read all current developments regarding the corona pandemic here.

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“We can get the economy going with a clear conscience”

The topic of the Corona crisis was on the agenda as four weeks ago. Politicians such as the Rhineland-Palatinate Prime Minister Malu Dreyer and the Green MP Cem Özdemir also took part in the new round. Another guest was Hendrik Streeck, the Bonn virologist, who became known nationwide through the controversial Heinsberg study.

In such a round, the VW CEO is of course the representative of the economy. Herbert Diess is to be representative of many other German companies, explaining how Volkswagen is dealing with the corona pandemic and how the group is trying to get out of the associated economic crisis.

This gladly takes on this role. “We can get the economy going again with a clear conscience,” he says, ultimately referring to his company’s own efforts. Volkswagen is currently starting to restart production in its German plants. It was Zwickau’s turn on Thursday, followed by the main plant in Wolfsburg, Emden and Hanover the following week.

Volkswagen had “very well” prepared for the restart in the past five weeks of the production stop. The manufacturing processes have been changed so that VW employees do not have to fear a corona virus infection.

Hygiene concept for VW locations

Wherever things get narrower and where there is less work to be done, additional masks are used. There is also a comprehensive hygiene concept for the VW locations. The car dealership was also prepared for the virus – the vehicles could in future be handed over without personal contact.

This speaks of the fact that Volkswagen would have continued production breaks for two, three or four weeks. But Volkswagen incurs two billion euros in fixed costs every week. Therefore it is of course also clear that such a forced break cannot last indefinitely, Diess said.

As always with such appearances in recent months, the VW boss brings China into play. There it was possible to control the corona virus and at the same time to restart the economy. “China shows us that both are possible,” he emphasizes. The People’s Republic is extremely important for the Wolfsburg group. VW sells about 40 percent of its cars there and earns billions.

Even if the corona restrictions of the past few weeks have cost Volkswagen a lot of money, the CEO expressly commits to political decisions. “We can be proud of what we have achieved as a state and society,” said Diess.

“We made our contributions”

The German health system had withstood the stresses of the corona virus and the dramatic developments like in Italy or Spain had not occurred. The Federal Republic coped well with the crisis.

Moderator Maybritt Illner once critically asks whether Volkswagen might not be asking too much from the state if the company makes use of the short-time work scheme for 80,000 employees and now demands a purchase premium to boost car demand. Various board members of the group had discussed such a bonus several times in the past few days.

But Herbert Diess disagrees. Volkswagen actively provided help in the acute crisis situation and donated medical equipment for around 40 million euros. Seven million protective masks were also handed over. “We made our contributions,” emphasizes the VW boss. The Spanish Volkswagen subsidiary Seat even produces ventilators.

The receipt of the short-time work allowance is also completely okay. “These are contributions that we made ourselves,” says Diess. In the past ten years that was four billion euros, currently Volkswagen transfers 500 million euros annually. In March, Volkswagen received around 40 million euros in short-time work benefits.

In addition, Volkswagen behaves as a social enterprise and increases the short-time work allowance from its own resources to 100 percent. The VW employees did not suffer any financial losses.

Overall, however, Hebert Diess has relatively little say in Maybritt Illner. Politicians and scientists dominate the group. There is another argument about the Heinsberg study, the discussion about education and schools is given a lot of space. Time and again the roundtable revolves around the question of whether Germany is withdrawing the restrictions on public life too early and whether this threatens further waves of infection.

Herbert Diess only speaks briefly at the end of the program. Maybritt Illner wants to know how he feels about the obligation to wear a mask. The VW boss quickly pulls out his personal copy and holds it up: “We need five million of them in our plants every week.”

More: VW board: “A funding model could be based on CO2 emissions”.

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False incentives, fraud, debt: the side effects of the corona crisis

The Chancellor is in top form in times of corona crisis. Angela Merkel explains complicated population doubling rates and reproductive numbers. But she also knows everyday things. “They have to be washed or ironed regularly, put in the oven or in the microwave,” Merkel explains how to care for respiratory masks. “Even if that sounds a bit housewife, so to speak.”

The omniscient state – embodied in the chancellor. The subjects are explained life down to the smallest detail. With this self-image, Merkel takes “measures that have never existed in our country before”. Fundamental rights are restricted, the economy is pushed to the brink and then supported with unprecedented aid.

One of Merkel’s closest confidants, Peter Altmaier, is more than enthusiastic. “An uncle who brings something is better than an aunt who plays the piano”, the Federal Minister of Economics remembers of his childhood.

And what is brought along! If you add up everything the federal government now wants to offer to combat the corona crisis, you get a gigantic sum of at least 1.2 trillion euros. No other country in the world has raised so much money in relation to its economic strength.

Germany has a full 35 percent, far more than the EU average or the USA. Federal finance minister Olaf Scholz did not understate what he promised a few weeks ago: “It is not spilled, but padding.”

graphic

The increase in importance and power is unique. Never in the history of the Federal Republic has a government intervened so quickly and deeply in public life and thus in the economy. After the financial crisis, German government debt rose by 315 billion euros in one year. The value of the federal, state and local governments will be far exceeded in this crisis. “I am worried whether we will be able to return to normal economic policy,” says Lars Feld, Germany’s top economy.

The measures to protect health are understandable. But the question increasingly arises: what side effects do the multi-billion dollar rescue programs have? The free market is disturbed, competition is distorted, prices lose their signal strength.

“As much market as possible, as much state as necessary”, the famous words of former Federal Minister of Economics Karl Schiller lose their meaning every day.

There is a risk of higher prices, inefficient companies and loss of wealth. It is significant that more and more companies are turning to the Bundeskartellamt during the corona crisis in order to be exempted from cooperating with competitors. The new spirit of state economy speaks.

Spend as much as you can. The year 2020 will be disastrous. Kristalina Georgiewa (IMF chief)

Certainly, help for companies with no fault of their own must be provided. But with the flood of support funds, the risk of misallocation is high. Capital and labor are tied up in companies with below-average productivity, less investment and innovative strength.

A few weeks ago, after a parliamentary request from the FDP for possible support from zombie companies, the Federal Ministry of Finance had to admit that “necessary market processes of creative destruction are hindered”.

The concern is justified that the state is eating itself too deeply into the economy, throwing privacy and data protection partially overboard and that the influence on the market will not be reversed after the end of the crisis.

A look at history suggests little good. The federal government is still 25 years after the IPO Deutsche Telekom still the largest single shareholder.

Fundamentally, there is a problem that is known in the economy as moral hazard: companies and citizens behave irresponsibly or carelessly due to existing false incentives. The news of fraudsters sneaking up subsidies is increasing.

“The state is a lousy entrepreneur”

The appearances of Altmaier and Scholz are characterized by superlatives. At the federal press conference, they will be presenting the rescue packages worth billions to the public with great regularity. “This is the most comprehensive and effective guarantee that there has ever been in a crisis,” said Altmaier in mid-March. “This is the bazooka, we’ll look for small arms later,” the Federal Minister of Finance said at the appearance.

The small arms that have now been added are quite large-caliber. Scholz announced a debt-financed supplementary budget of 156 billion euros. This includes an emergency fund with a volume of 50 billion euros, which is aimed at the self-employed and small businesses with up to ten employees.

The federal guarantee for the state bank KfW is increased by up to 450 billion euros. And then there is an Economic Stabilization Fund (WSF) with a volume of 600 billion euros. The majority is earmarked for government guarantees to keep companies liquid.

100 billion euros are reserved for possible investments, i.e. partial nationalization of companies. The battered Lufthansa is already holding talks about state participation.

You can still hear Altmaier’s words: “The state is a lousy entrepreneur.” The Federal Minister of Economics at least dedicated the most beautiful hall in the ministry to Ludwig Erhard. But he is currently just as far away from Erhard’s mantra as the Germans are from summer leaves in Mallorca.

Minister of Economics Peter Altmaier (standing) and Minister of Finance Olaf Scholz (front)

The father of the “German economic miracle” throbbed to measure, he remembered sentences, the state should not be a player, but an arbitrator in the economy. Now the state is preparing to take over the entire football club.

No other industrial country is helping its economy with such large sums as the Federal Republic. This shows a new evaluation by the International Monetary Fund (IMF). He does not criticize Germany, on the contrary. “Spend as much as you can,” advises IMF chief Kristalina Georgiewa. The economic situation is too depressing.

The Council of Experts is now assuming that the economy will decline by more than 5.5 percent this year. This is the case that was previously treated as a worst-case scenario. The economic downturn would be worse than in the global financial crisis. 725,000 companies have registered financial difficulties and short-time work.

Including: hospitals. Health Minister Jens Spahn ordered them at the beginning of March to postpone all planned operations. For the hospital operator, this means severe revenue losses. More than a third of the intensive care beds are not occupied. With the Hospital Relief Act, the federal government created a regulation to compensate the clinics for the failures. But that’s far from enough.

This is the bazooka, we’ll look at small arms later. Olaf Scholz (Federal Minister of Finance)

Some private organizations have registered short-time work, including the Schön-Klinik group. The head of the German Hospital Society, Gerald Gaß, sees the time for a “careful, gradual resumption of regular care”.

Spahn also said last week that clinics could “gradually return to normal”. “We do not want to keep 40 percent of the intensive care ventilation beds in Germany permanently”, said the minister.

The pressure on the companies is huge, the need for help is great. This year alone, the federal government is raising 156 billion euros in new debt. The federal states are also preparing an extensive flood of money for pumps.

According to a survey by the Handelsblatt newspaper among the 16 state finance ministries, they are currently planning 65 billion euros in new debt to fight the crisis. In addition to the federal government’s huge € 1.2 trillion rescue package, the federal states are also helping their companies and the self-employed. Bavaria alone has launched a fund with 60 billion euros.

The IMF chief not only welcomes the gigantic aid package in Germany, the monetary fund also calls for thorough control. “Keep the bills,” said Georgiewa. Transparency and accountability should not be put off in the face of the crisis. Whether Germany is world champion in this discipline, doubts are increasing.

Risk zombie company

The financial crisis shaped a saying by the former head of central bank in Europe, Mario Draghi: “What ever it takes”. In this crisis, it becomes a “Whatever, take it!” Aid is mostly spent without checking, the money cannot be distributed quickly enough.

According to an overview by the Ministry of Finance and the Ministry of Economics, over 26 billion euros were applied for by KfW Hilfen. Almost 13,000 of the more than 13,200 applications were approved. In other words, almost anyone who wants help gets it, most likely companies that didn’t have a working business model before the pandemic.

This easily creates zombie companies that are only alive because of generous state aid. After all: With the large sums, the KfW steering committee seems to be examining it more closely. So far, around 8.5 billion euros have been approved. So it takes a little longer for the large-volume applications.

In contrast, the self-employed and small businesses with up to ten employees are suspiciously fast. So far, according to the overview of 1.65 million applications, around 1.1 million have been approved and more than nine billion euros paid out. These are not loans, but aid that does not have to be repaid.

“Speed ​​and thoroughness go hand in hand: it is carefully checked who receives the money,” Finance Minister Scholz promised. But is that true? North Rhine-Westphalia and Berlin were even recently forced to suspend immediate payments because large-scale fraudsters wanted to get to the pots.

There are also problems with honest entrepreneurs. In North Rhine-Westphalia, for example, the self-employed and small businesses are always granted the maximum amounts of EUR 9,000 and EUR 15,000 – regardless of need. This practice is not well understood in the Federal Ministry of Economics. Because a flat-rate payment of maximum amounts was actually not intended.

The aid should amount to up to 9,000 euros for companies with up to five employees and up to 15,000 euros for up to ten employees. The emphasis here is on the “up to”. According to the Ministry of Economic Affairs, the actual amount should be based on sales and operating expenses for the next three months. An entrepreneur with zero euros turnover and 1000 euros costs would be entitled to 3000 euros in emergency aid.

But these details were lost somewhere in the confusion between the federal states and the federal states. The up to 50 billion euros are provided by the federal government. Although federal money is at stake, it is up to the federal states how much they scrutinize companies. In Hamburg, for example, a liquidity check is required. Other countries are significantly less strict so that aid can flow as quickly as possible.

In Berlin, more than a billion euros were paid out to solo and small entrepreneurs within days. And the Berlin Senate also admits behind the scenes that surely there are also deadweight effects. Since no examination was carried out, almost everyone received 14,000 euros in a combination of federal and state funds. These include the self-employed, who normally have annual sales that are significantly lower, they say.

Some recipients are now voluntarily repaying the aid for fear of sanctions. But whether a subsequent thorough examination is possible to convince fraudsters is skeptical in financial management.

Dangerous false incentives

The economic nonsense, which is operated partly in the name of Corona, is great. Governments in the federal and state governments are increasingly creating the illusion that they can regulate everything with state trillions. And more and more, government intervention and expansion is creating false incentives in all areas of the economy, which can be revenged bitterly.

Take the housing market as an example: the Federal Minister of Justice, a woman from the SPD, wanted to protect the tenants. The result is a half-baked law that gets small landlords into trouble. The law was so badly made that solvent companies like Adidas or Deichmann used the gaps and simply suspended the rent payments. Only after a storm of indignation did Adidas row back.

Take the example of KfW loans: After the institutes hesitated to pass on the subsidized loans from the Staatsbank KfW to companies because they still had to bear ten percent of the default risk, the state assumed full liability. With the danger that house banks will now be able to provide loans to companies that have long been bankrupt.

The banks don’t care, they are released from any liability, but of course they still make good money from their business. The fool is the taxpayer who has to answer for the defaults.

Example of short-time work: Short-time work allowance is a tried and tested crisis instrument. The state replaces up to 67 percent of net wages. However, the SPD was not enough. In the coalition committee on Wednesday, she pushed for an increase to 80 percent.

It is the most comprehensive and effective guarantee that there has ever been in a crisis. Peter Altmaier (Federal Minister of Economics)

However, a general increase would have significant deadweight effects: Many companies are already increasing short-time benefits from their own resources. Apart from that, the short-time work allowance is not meant to secure the standard of living, but rather to ensure the survival of companies and thus avoid unemployment.

In other areas, the federal corona strategy is rather arbitrary. The craft complained that the vehicle registration offices were closed. There is also much discussion about opening shops up to the limit of 800 square meters. This border was communicated at least improperly and caused confusion and indignation among the shopkeepers.

Now a Hamburg administrative court has declared the 800 square meter rule to be illegal. The court could not understand why opening larger sales areas alone should attract more people to the city center. Necessary infection protection measures could be followed at least as well in larger stores as in smaller facilities.

Whimsical and impractical was initially the requirement that repair shops were allowed to remain open, but the sales rooms had to be closed. Many craftsmen wondered if they could lead the customers through the sales room into the workshop. Another detail from this series of undesirable side effects of the rescue policy.

The border closures, for example with the Czech Republic, mean that the bricklayers are missing in the construction industry and the harvest workers in agriculture from Romania. The state decides a lot, but the consequences are borne by the entrepreneurs and their employees.

The argument for the state’s rapid generosity in the crisis is: rather spend more now to prevent the economy from crashing and millions of jobs be lost than have to finance mass unemployment for a long time. This approach is absolutely correct. But it also remains true: somehow the state rescue billions have to be financed at least in the medium term if the next generations are not to be overwhelmed.

Currently this is done through the use of reserves and debts. Germany certainly has scope. The Federal Republic had just pushed the debt level to below 60 percent, thereby meeting the Maastricht criteria for the first time in many years in 2019. But that will be the last time for a long time.

As a result of the corona crisis, the federal government expects a general government deficit of 7.25 percent of gross domestic product (GDP) this year. The debt ratio as a share of all debts in GDP is estimated at 75.25 percent, as can be seen from the German Stability Program 2020.

“The projection is currently subject to very high levels of uncertainty,” says the current report. In other words, the debt level could be even higher. This mainly depends on how high the losses are that the federal government will incur from its guarantees and sureties.

Given the huge commitments, some in the grand coalition are trying to put the brakes on. “I don’t like the fact that we almost always get new suggestions every hour, what else can you do,” said Union leader Ralph Brinkhaus. “All of this must also be paid for.”

In a crisis, the state’s money is loose. Some sense their chance to finally implement long-held plans.

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