The German government pulled out a big "liquidity bazooka" today in response to the economic challenges of #Covid_19 . It's volume is huuuuge!
Here're the details:
bundesfinanzministerium.de/Content/DE/Pre…
But one shouldn't think of this program as a stimulus, but as an insurance package /Thread
Here're the details:
bundesfinanzministerium.de/Content/DE/Pre…
But one shouldn't think of this program as a stimulus, but as an insurance package /Thread
Key problem in 🇩🇪 is still exponential growth of new infections. Daily growth rates exceed 20%. If this continues, the health system will run into serious trouble very soon.
To address this, Angela Merkel has yesterday asked Germans to "keep social interactions to a minimum" /2
To address this, Angela Merkel has yesterday asked Germans to "keep social interactions to a minimum" /2
As a first priority, the bazooka includes a "whatever it takes" for the national health system.
1 bn € was released immediately, but hospitals can ask for as much money they need to build up facilities for intensive care, testing, etc.
That's the right choice... /3
1 bn € was released immediately, but hospitals can ask for as much money they need to build up facilities for intensive care, testing, etc.
That's the right choice... /3
...because at the end of the day, Germany needs to achieve what South Korea has already achieved: a turnaround in new infections.
Their experience suggest this is only possible with stringent social distancing in combination with excessive means for testing and medial care. /4
Their experience suggest this is only possible with stringent social distancing in combination with excessive means for testing and medial care. /4
Consequently, social distancing measures are finally introduced. Bundesliga will pause, trade fares are cancelled, schools and nurseries are closed
Obviously, this has immediate costs. The sales of many firms (from Lufthansa to the pub next door) are already down dramatically /5
Obviously, this has immediate costs. The sales of many firms (from Lufthansa to the pub next door) are already down dramatically /5
What the "bazooka" tries to do, is to provide insurance to those who are affected
- workers can move to a short-term scheme, where salaries are covered by a gov agency
- firms have access to almost unlimited credit (at zero interest) to cover other costs, to avoid insolvency /6
- workers can move to a short-term scheme, where salaries are covered by a gov agency
- firms have access to almost unlimited credit (at zero interest) to cover other costs, to avoid insolvency /6
What the "bazooka" does *not* try to do, is to provide stimulus.
It's not the intention to instantaneously drive up consumption. Quite the opposite, as long as infection rates are still going up, "social consumption" needs to freeze. /7
It's not the intention to instantaneously drive up consumption. Quite the opposite, as long as infection rates are still going up, "social consumption" needs to freeze. /7
Unfortunately, this focus of the "bazooka" program -- insurance, not stimulus -- is not clear to everybody.
Some seem to be disappointed that it doesn't include stimulus measures, such as VAT cuts, or direct transfers to low-income households with high propensity to consume /8
Some seem to be disappointed that it doesn't include stimulus measures, such as VAT cuts, or direct transfers to low-income households with high propensity to consume /8
But such a focus would be misplaced, at least right now.
I mean, you cannot tell Germans to "minimize social interaction" (A.Merkel), and at the same time tell them to go out on a shopping trip.
That's totally inconsistent, and actually even dangerous right now. /9
I mean, you cannot tell Germans to "minimize social interaction" (A.Merkel), and at the same time tell them to go out on a shopping trip.
That's totally inconsistent, and actually even dangerous right now. /9
For the same reason, it makes no sense to search for groups in the population who don't directly benefit from the "bazooka".
Because the key idea is not that everybody should get something. The idea is that you're covered when your earnings have dropped because of #Covid_19 /10
Because the key idea is not that everybody should get something. The idea is that you're covered when your earnings have dropped because of #Covid_19 /10
Myself, as a university professor in the public sector, I'm not at all affected economically by #Covid_19 . My job and my salary are safe. Hence, I shouldn't receive any support.
The same is true for pensioners, firms and workers in the video-conferencing industry, etc. /11
The same is true for pensioners, firms and workers in the video-conferencing industry, etc. /11
An actual problem of the "bazooka" is that the two basic pillars, the short-term scheme for workers and the liquidity support for firms, leave some people unsupported who'd actually quilify, as #Covid_19 actually decreased their earnings: artists, gig-workers, ... /12
...i.e., self-employed workers who run their own business
That's a serious issue. Which instrument is best suited to support those people? Maybe they deserve a transfer, not just a credit, similarly to dependent employees who're on the short-term scheme. That's fair enough.../13
That's a serious issue. Which instrument is best suited to support those people? Maybe they deserve a transfer, not just a credit, similarly to dependent employees who're on the short-term scheme. That's fair enough.../13
But this difficulty does not and should not change the basic focus of the "bazooka program": insurance, not stimulus.
#Covid_19 doesn't make a case to pay out universal cash transfers, just because designing support for some groups isn't easy and requires some effort. /14
#Covid_19 doesn't make a case to pay out universal cash transfers, just because designing support for some groups isn't easy and requires some effort. /14
Now, of course, I have nothing against stimulus packages per se, such as tax cuts, cash transfers, and all that.
But at the moment, we're still in Phase 1: limit social consumption, get infections down, provide insurance to workers & firms. /15
But at the moment, we're still in Phase 1: limit social consumption, get infections down, provide insurance to workers & firms. /15
When infection rates are down, things can change and we can enter Phase 2.
At that point, we must tell people to "let the good times roll" again, and provide them with the means to spend cash (cc @StephanEwald ). But we're not yet there! /END
At that point, we must tell people to "let the good times roll" again, and provide them with the means to spend cash (cc @StephanEwald ). But we're not yet there! /END
A few additions: when I say „huge“, I mean „HUGE“
Pillar 2 of „bazooka“ works through state guarantees for the public @KfW bank. The fresh volume that can be activated immediately is 93bn 😳
Quite unlikely this just passes without becoming „a thing“ /+1
Pillar 2 of „bazooka“ works through state guarantees for the public @KfW bank. The fresh volume that can be activated immediately is 93bn 😳
Quite unlikely this just passes without becoming „a thing“ /+1
Second, although we should not do stimulus right now (in phase 1), it has to be clear that stimulus will come in phase 2 once infections are down. Through pub investment and tax cuts.
This has to be communicated very clearly to guide expectations /+2
This has to be communicated very clearly to guide expectations /+2
Third, #Covid_19 is a global problem. And although bazooka focuses on Germany right now, there was a clear commitment in the press conference by @OlafScholz and @peteraltmaier to help European neighbors, esp Italy
Here’s a great thread how to do it: /+3
Here’s a great thread how to do it: /+3
