The news late Sunday that Chancellor Angela Merkel has gone into quarantine after a physician she recently saw tested positive for coronavirus has pushed the already-jittery German nation one step closer to nervous-breakdown territory.
There’s no indication Merkel, 65, who was exposed when the doctor gave her a pneumococcus vaccine (in line with German government recommendations for people her age) has the virus.
Still, if there’s one thing that’s given Germans solace amid the tumult in recent weeks, it’s that Merkel, the “forever chancellor” who has led the country through thick and thin for the past 15 years, is still at the helm. Even Merkel’s detractors acknowledge she’s a safe pair of hands in uncertain times, having led the country through the financial implosion of 2008-2009, the eurozone debt crisis that began in 2010 and the refugee influx of 2015.
Merkel was Germany’s most popular politician before coronavirus hit and there’s little reason to expect her calm stewardship over the past couple of weeks has done anything but bolster Germans’ confidence in her.
In the coming days, Germany’s parliament is expected to rush through a series of emergency measures designed to keep the economy from cratering.
Though she remains in charge — Merkel’s spokesman said in a statement that she will continue to work from home — Germany (and Europe) now face the prospect of navigating the pandemic without her.
And there’s plenty to do.
In the coming days, Germany’s parliament is expected to rush through a series of emergency measures designed to keep the economy from cratering.
At the center of the plan is a proposed supplementary budget worth more than €150 billion on top of the regular budget of €362 billion. In addition, the government is planning to clear the way for €400 billion in loans to struggling businesses and hundreds of billions more in credit guarantees for larger companies.
The pandemic crisis has dried up business for thousands of firms, small and large, in recent weeks.
“It is important to send a clear and strong signal,” Finance Minister Olaf Scholz said over the weekend.
Scholz, a Social Democrat who is also vice chancellor, would likely take over Merkel’s responsibilities, at least on a temporary basis, if she were incapacitated. The decision would rest in the hands of German President Frank-Walter Steinmeier.
'Schwarze Null' no more
The government’s planned crisis measures underscore just how severe Berlin expects the economic impact of the coronavirus to become. The increased spending will force the government to break the biggest taboo in German politics by sacrificing the country’s balanced budget — the so-called schwarze Null, or “black zero.”
Doing so will require the ruling coalition — which includes Merkel’s center-right Christian Democrats and the Social Democrats — to trigger an emergency clause in the constitution allowing the government to spend more than 0.35 percent of gross domestic product, which totaled €3.44 trillion in 2019.
Merkel’s Cabinet is expected to approve the plans Monday, followed by a vote in the Bundestag on Wednesday. Lifting Germany’s so-called debt brake, however, requires a majority of MPs (355 of 709) to be present. Party leaders, including from the opposition Greens and Free Democrats, were scrambling over the weekend to ensure a quorum.
Though much maligned abroad in recent years, Germany’s parsimony has arguably put it in a better position than any other country to weather the current storm. The country has recorded a budget surplus for the past five years.
While some economists are projecting a rebound in the second half of the year, that optimistic scenario depends on a halt in the spread of a virus that has so far defied most predictions.
Given German debt yields are currently in negative territory (meaning investors are paying to hold the country’s bonds thanks to Germany’s solid credit history), Berlin can effectively borrow money for free.
At least for now.
Bigger than Lehman
As has happened in much of the rest of Europe — and the world at large — the German economy is grinding to a halt. Major manufacturers, including Volkswagen and Mercedes, have closed factories and sent workers home. Tourism and retail are at a standstill. Virtually no aspect of the economy outside the public sector and food production has been spared the current crisis.
On Sunday, just before Merkel went into quarantine, she announced a further tightening of controls on Germans’ freedom of movement and mandatory closures for many non-essential businesses, including restaurants and cafés, which had remained opened during daylight hours. The government is betting the tougher rules — which stop short of an outright house arrest while discouraging people from leaving home — will save lives by slowing the spread of the coronavirus.
Even so, the new regulations will deal a further blow to Europe’s biggest economy.
As of Sunday, more than 24,000 people in Germany had contracted the virus. Though the pace of new infections has decelerated slightly over the past four days, the country is far from overcoming the crisis, health officials say. The number of coronavirus deaths in Germany so far is just under 100 but is expected to rise substantially in the coming weeks.
Government-imposed shutdowns across Germany’s 16 Länder, or states, in recent days already forced the closure of most aspects of public life, including most shops as well as museums and hotels.
Many economists are already predicting a deeper downturn for Germany than at the height of the Lehman Brothers crisis in 2009, when the economy shrank by nearly 5 percent in a single quarter.
“It’s clear that economic activity in Germany is going to fall dramatically in the coming weeks,” Commerzbank economists said in a note to clients over the weekend. The bank projects a decline in economic output of 3.5 percent in the first quarter and a further drop of 7.5 percent in the second quarter.
Trouble is, no one knows what happens after that. While some economists are projecting a rebound in the second half of the year, that optimistic scenario depends on a halt in the spread of a virus that has so far defied most predictions.
Former German Finance Minister Peer Steinbrück, who led the effort to preserve the country’s banking system in the wake of the Lehman bankruptcy, said the coronavirus posed an even greater threat to the German economy in terms of its breadth. He encouraged the government to use the “high-caliber” weapons in its arsenal to stave off a collapse.
“This crisis is much more existential than what we experienced in the financial crisis in 2008-2009,” he said, predicting a much deeper downturn than in 2009. “We shouldn’t kid ourselves.”
