“The crisis of the German model” is the title of the essay by analyst Vladimiro Jackets published in the geopolitical magazine Limes.
A summary by Maria Scopece Germany is first in class among European economies, and is celebrated by the Italian media as a model country in the management of the Covid-19 epidemic . The reality, however, is a little different from how it is told. The analyst and manager in the banking sector Vladimiro Jackets explains this in his essay, with the unequivocal title: “The crisis of the German model” published by the geopolitical magazine Limes . The engine of Europe in trouble even before the pandemic crisis
Jackets’ analysis – which has been following and analyzing the German economy for some time – starts from the consideration that even before the epidemic crisis Germany was in excellent health. “Starting from 2016, the German current account surplus as a percentage of GDP has gradually decreased with a negative impact on growth – writes Jackets -. The loss of momentum in relations with foreign countries, which in any case remained positive, was joined by various problems such as the difficulties of the automotive sector or the less than brilliant performance of the banking sector ”. The dynamics of investments: a problem for the next decade
This difficult situation has not been balanced by fiscal policyvice versa between 2016 and 2019 the German state recorded a budget surplus, the German state, therefore, took more from the economy than it gave, which resulted in a growth limited to + 0.6%. domestic demand has two effects, one short-term and one long-term. First of all, the dynamics of investments slowed down in 2018 and then showed a negative change in 2019 which contributed to a general aging of the country’s infrastructures. In the long run, looking at the next 10 years, the growth potential of the German economy in the near future is damaged. The analyst writes on Limes: “ Marcel Fratzscher, president of DIW, one of the main German research institutes, estimated the cumulative value from 1999 to 2011 of Germany ‘s investment gap compared to the Eurozone average to be over 40% of GDP ”. In summary, there are three clues that cause fear for the growth of the German economy: non-anti-cyclical and restrictive fiscal policy, insufficient investments and a close link between growth and the performance of global trade. The production of machines: the difficulty in innovating and foreign competition
This last point inevitably impacts one of the driving forces of the German economy: the production of machines and automobiles. The first buyer of German production machines is China, which has developed the technology to be able to produce them independently and export them to other countries. In the second case, the condition of dominance, especially in the diesel car sector, has scarcely stimulated the spring of innovation with respect to the new habits of mobility and the different sources of power. If you add to this the Trump administration’s tariff war, there is a 19% drop in the sector compared to just three years earlier. In 2020 there was a further decrease of 21% compared to 2019. “Today the automotive industry, which alone represents a fifth of the entire added value of the German economy – adds Jackets -, is exposed to two important challenges: the transition to electric and digitalization. Towards both points – the president of Volkswagen, Herbert Diess recalled recently – he starts very late ”. The difficulties in the sector have an impact on trade union tensions, even in Volkswagen. Public aid to the economy
The solution to the problems of the automotive sector passes through public aid. Last November, the German government made available to the sector 5 billion euros in non-repayable grants to overcome the economic crisis linked to the Covid-19 epidemic. However, as Jackets highlights, the turbulence in this sector only partly has to do with the current emergency, and in light of this, they would be illegitimate under the EU legislation on state aid . However, there is no ongoing investigation in this regard. Government funds will be joined by European funds from Next Generation EU, however it may not be enough to successfully carry out the electricity transition. Metal industry: a lame horse
Another sector in which the Covid-19 crisis has only aggravated existing dynamics is that of steel. The analyst on Limes reports that Thyssen-Krupp has lost 5.5 billion eurosin the period from September 2019 to September 2020, the largest loss in the history of the company. Last summer, Thyssen-Krupp sold its elevator business at a profit. Now he is also trying to divest the steel-producing branch, the aspiring buyer and Liberty Steel, but the sale would instead be associated with significant losses. State subsidies from the Land of North Rhine-Westphalia should also intervene. The dogmas of a balanced budget and the ban on state aid fall.
Finally, the analysis of Jackets reaches a conclusion that is a paradigm reversal. The need to face this crisis has led Germany to abandon two dogmas imposed on itself and on the other countries of the European Unionin the past decade: the ban on state aid and a balanced budget. Moreover, also the exit from the crisis of 2008-2009 and passed through the introduction into the economy of 69 billion in contributions to manufacturing companies , as well as much greater aid granted to German banks. The scale of the financial commitment made by the state in such a short time is unprecedented. At the end of August 2020, the economic stimulus, in various forms, amounted to 1,400 billion euros. The direct tax boost was equal to 8.3% of GDP, the deferred payments to 7.3% and guarantees and other interventions to 24.3%. In the same period, the direct tax boost from the Italian government was just 3.4% of GDP. Banks: the risk of zombie companies
German banks could soon become the next “case” made in Germany “. Like other European countries, Germany has also tried to repair the damage caused by the coronavirus epidemic through legislative and regulatory measures. “The most important is probably represented by the suspension of the obligation to notify corporate insolvency situations – writes the economist -. This obligation was suspended until 30 September 2020 for all companies and then extended until the end of January for only those whose over-indebtedness was dependent on the epidemic “. The drop in insolvency proceedings was huge, in October they were even 45.8% lower than in the same month of 2019. The greatest risk for banks is that of suffering a real wave of new problematic loans as soon as the cap imposed by law is removed.

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