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March 17, 2020

The old crisis narratives are returning to Germany

Germany is like Winston Churchill’s America. It will do the right thing, eventually, reluctantly, and insufficiently. But do not underestimate the opposition, those who pull Germany back in the other direction. They are not just the famous professors. We noted a letter by a group of politicians and economists that included Peer Steinbruck, a former SPD finance minister, Wolfgang Clement, a former SPD economics minister, and Günther Oettinger, a former European Commissioner, calling on the ECB to raise rates. Now, the ECB will not do that. But the important point is that this kind of stuff matters because if forms narratives. The narratives that accompanied the eurozone crisis are coming back. The arguments are not new. They are essentially interest-based: low rates are bad for German savers and for German insurance companies. They are also bad for German foundations, like those that own newspapers. They are not allowed to invest in equities. 

Narratives such as these matter because they will ultimately create political perimeter fences. The debt-brake and black-zero nonsense seriously constrains Germany’s ability and willingness to launch a big discretionary stimulus right now. FAZ reports that Olaf Scholz’ finance ministry is still working on the assumption of a black zero during the 2021-2024 budget period. One of Scholz’ aides is quoted as saying that the purpose is to express a sense of continuity and normality. You would not say such a thing if you were about to launch a big discretionary stimulus. 

And, while Scholz would probably not put his name to a letter like above, unlike Steinbruck, he has never dared break ranks. The political dividing line on economic policy in Germany is not between conservatives and progressives, as in the US, but between ultras and cowards. 

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March 17, 2020

Return of the war against

Throughout Europe governments are now implementing drastic measures to contain the spread of Covid-19. Schengen's external and internal borders are closing for non-essential travel. The state of emergency has been invoked in some EU countries, giving the government more power to act forcefully and quickly without the usual checks and balances. 

France and Germany are following Italy and Spain with their own sets of lock-down measures. Emmanuel Macron yesterday proclaimed a curfew in what he described as a health war. As of today, the military has been enlisted to help transport the sick, police will patrol the streets, and those outside will have to prove they have reason not to be home or risk being punished. Germany went less far. Angela Merkel closed down brothels and religious services, clubs, bars, leisure centres and playgrounds. But German restaurants remain open. They only need to increase the distances between tables. Schools are closing down throughout Europe, with the notable exception of the UK.

Once this crisis is over people will look back and ask whether it could have been different if the governments had locked down earlier. We at Eurointelligence recommended an immediate travel ban, exactly the one that is now being enforced in panic conditions. These choices are not easy. The European public was not prepared for this. They might be for the next pandemic. 

Could the UK fare better by keeping schools open and public life going? Boris Johnson seems to be changing gears too, as experts are putting pressure on the UK government and people are starting to panic. So far there is only a recommendation to avoid pubs and unnecessary travel, but work life and schools are to continue. 

The return of war rhetoric brings back memories. Remember George W Bush proclaiming the war on terror? Look where we are now. Terror is far from eradicated and the blame game is thriving. 

In Europe today people are experiencing a world not seen since World War II. Shops and public life shut down, freedom of movement severely limited. This too has knock-on effects on mental health, triggering traumas in people and societies. 

This crisis not only challenges our societies but also the psychology of the people. Europe will be a different place after this crisis, as the solidarity and resilience of our peoples and systems will be tested.

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