Will the German economy recover strongly?

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Yesterday, the monetary policy meeting of the European Central Bank (ECB) was scheduled. The minutes of the previous meeting in October show that the ECB was surprised by the weak inflation rates in recent months. The economic data for the euro area point to a stronger-than-expected slowdown in economic recovery as a result of the second wave of corona infections. Sharpened lockdown measures in European countries are adversely affecting banks’ credit risks. 

The ECB will wait until the next meeting scheduled for 10 December before taking additional stimulus measures. Monetary policymakers then hope to have more clarity on major geopolitical developments such as the outcome of the US presidential elections and Brexit. The high degree of uncertainty justifies, in the ECB’s view, the need to use more monetary policy instruments in December in order to minimise economic damage.

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On 1 November, Christine Lagarde was President of the ECB for one year. From the moment she took office, she called on the European heads of government to assume their responsibility to support economic developments in budgetary terms.

By its very nature, the response to such an appeal from the central bank is rather sceptical, particularly from the northern European countries. However, following the economic boom caused by the corona-pandemic, that attitude has changed radically. Until recently, ‘die Schwarze null’ (the black zero) was sacrosanct for the German state budget; this year, EUR 218 billion worth of corona-support measures will be entered in the budget. The German Finance Minister, Olaf Scholz, has repeatedly called on the government to do everything possible to minimise the economic impact. According to insiders, the amount that will have to be borrowed next year to finance the support measures could be as much as EUR 180 billion. 

Public spending is counterbalanced by the savings drive of German private individuals. In spite of the negative interest rates charged by banks, Germans’ savings have risen by EUR 107 billion in seven months to a total of EUR 2.5 trillion. If eastern neighbours start to relax as a result of rising consumer and business confidence, the economic recovery may well be stronger than economists are now counting on.

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