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Germany's Economy Is A Bigger Risk Than Ever For EU Stability

Germany has the resources to weather the storm, but not everyone in Europe is convinced that's a good thing.

In Berlin on April 17
In Berlin on April 17
Tobias Kaiser

BRUSSELS — No country in Europe is in a better position than Germany when it comes to funding domestic economic recovery. But in Brussels, Rome and Madrid, politicians see that as a potential problem: They're worried that less economically stable countries might be left behind by the coronavirus pandemic, and that Germany and other countries with strong economies will widen the gap between themselves and the rest of the EU.

That a country has enough money to spend its way out of a crisis would seem to be good news. Elsewhere in Europe, though, policymakers are watching with mixed feelings as Germany spends hefty sums to support domestic companies and workers through the lockdown. And now, as result, the European Commission is blocking Germany from making its own decisions about state aid.

Historians may well tell us that epidemics in the past have tended to reduce financial inequality within societies, but the European Commission expects the opposite to be true in Europe.

Everyone must play by the same rules.

"It is extremely important to ensure that this crisis doesn't exacerbate economic, social and political differences between countries and regions," warned Valdis Dombrovskis of Latvia, the European Commission's executive vice-president for an economy that works for people.

European Commissioner for Economy Paolo Gentiloni has repeatedly insisted that "everyone must play by the same rules' as Europe emerges from lockdown. The European Commission has long called for a level playing field when it comes to access to the Chinese market, or a Brexit agreement that doesn't involve fiscal, social and environmental dumping. But this is the first time this call has been implicitly aimed at Germany.

A privileged position

Economists say the concerns among EU commissioners are well grounded: Europe's national economies are not all equally well prepared to deal with the economic consequences of the pandemic. Germany has enjoyed a boom decade of economic growth, while Italy's economy has hardly grown at all over the last 20 years.

The worry is that the crisis will only widen the gap, as richer countries such as Germany, the Netherlands and Austria can afford to pump a lot of money into their national economy to see it through the pandemic. Last year, Germany's national debt fell below 60% of GDP, the level set out in the Maastricht Treaty, and before the crisis the social security office was sitting on reserves reaching into billions of euros.

The countries of southern Europe don't enjoy the same kind of financial security. They are still working to reduce their levels of debt from the 2008 financial crisis, and therefore can only offer limited support for domestic companies and workers.

This means that the response other countries have to the crisis pales into insignificance compared to the reaction from Berlin. Germany's economy represents a quarter of Europe's GDP, but according to data from the European Commission, Berlin is responsible for more than half of the government aid that has so far been approved by EU countries.

In a comparison of EU countries, global forecaster Oxford Economics concluded that Germany's state aid was disproportionately large: "Overall, Germany's response has been by far the most far-reaching. That means they have established a good starting point for recovery," the analysts write. The Netherlands and Ireland have approved similarly extensive rescue packages.

Statue with a face mask in Brussels — Photo: ål nik

But the countries with economies that have been hit hardest by the virus — such as Greece, Italy and Spain — have so far been able to offer relatively little financial support. According to Oxford Economics, these countries could lose more than 12% of their GDP, whereas the Netherlands stands to lose around 9% and Germany around 10%.

On Wednesday, the European Commission is due to publish its forecast for economic development this year, an opportunity to analyze the effects on different economies afresh. The Commission and the governments of countries such as Italy and Spain are worried that over the next few months, German, Austrian and Dutch companies that have benefited from state aid could encroach on their domestic firms' market share, or buy them up completely.

It is extremely important to ensure that this crisis doesn't exacerbate economic, social and political differences.

At a recent shareholders' meeting, Lufthansa CEO Carsten Spohr had to emphasize that his company has no intention of buying rivals that have fallen on hard times. That same week, an Italian union member representing the beleaguered airline Alitalia called for pre-virus market shares to be preserved after the pandemic.

Legitimate concerns

The European Commission is concerned that the various national economies could drift so far apart that the Eurozone or even the whole EU could collapse. This fear is intensifying the debate around the European economic recovery fund, which will release 1.5 billion euros of support for EU economies. The Commission is due to set out detailed proposals for the project next week.

Until then, the war is being waged elsewhere. Germany and Austria are arguing that they should be allowed to support their own domestic companies as they see fit. The European Commission disagrees.

It is true that Margrethe Vestager, European commissioner for competition, has already relaxed the strict rules on state aid and waved through dozens of emergency financial aid programs. This week she will most likely approve the German Economic Stabilization Fund, but she is reluctant to make any further concessions to the German government.

German Minister for Economic Affairs Peter Altmaier would like to offer companies at risk of bankruptcy loans that are 100% guaranteed by the state, but Vestager is against this. In the European Parliament last week she said the German state could guarantee loans of up to 800,000 euros at 100%, but not any larger sums.

That has been met with surprise in Berlin. In mid-April, Altmaier wrote to Brussels asking for more flexibility around financial support measures and permission to fully guarantee loans. "Stabilizing the German economy is also in the European interest," he wrote.

Altmaier also addressed fears about inequality after the pandemic. He sees Germany's role as one of protection, writing that Europe will only be able to "guarantee a level playing field on the global stage" if German companies are strong enough.

Austrian Minister of the Economy Margarete Schramböck and Minister of Finance Gernot Blümel have also written to Vestager asking the European Commission to set aside all rules on state aid during the crisis. They claim this flexibility is necessary to allow governments to respond quickly.

"Austria and other countries would like to be able to do as they see fit when it comes to state aid, without having to go cap in hand to Brussels," said German MEP Andreas Schwab (CDU), the European People's Party Group coordinator on the Committee on the Internal Market and Consumer Protection.

Germany's role as one of protection.

He regrets Vestager's decision to block the German government's move to fully guarantee loans, which he sees as urgently necessary. But he also thinks the accusations from Berlin and Vienna are an overreaction.

"The Commission is trying to make sure that EU countries don't have vastly different conditions when they begin trying to restart their economies. Those are legitimate concerns, but I don't expect the Commission to be led by such political considerations when making decisions about state aid," he said.

Vestager too is aware of how complex the situation is, but said there's no question that if it's able to recover quickly, Germany — the continent's largest economy — will benefit other EU countries.

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The Problem With Always Blaming Climate Change For Natural Disasters

Climate change is real, but a closer look at the science shows there are many factors that contribute to weather-related disasters. It is important to raise awareness about the long-term impact of global warming, but there's a risk in overstating its role in the latest floods or fires.

People on foot, on bikes, motorcycles, scooters and cars navigate through a flooded street during the day time.

Karachi - People wade through flood water after heavy rain in a southern Pakistani city

Xinhua / ZUMA
Axel Bojanowski


BERLIN — In September, thousands of people lost their lives when dams collapsed during flooding in Libya. Engineers had warned that the dams were structurally unsound.

Two years ago, dozens died in floods in western Germany, a region that had experienced a number of similar floods in earlier centuries, where thousands of houses had been built on the natural floodplain.

Last year saw more than 1,000 people lose their lives during monsoon floods in Pakistan. Studies showed that the impact of flooding in the region was exacerbated by the proximity of human settlements, the outdated river management system, high poverty rates and political instability in Pakistan.

There are many factors that contribute to weather-related disasters, but one dominates the headlines: climate change. That is because of so-called attribution studies, which are published very quickly after these disasters to highlight how human-caused climate change contributes to extreme weather events. After the flooding in Libya, German daily Frankfurter Allgemeine Zeitung described climate change as a “serial offender," while the Tageszeitung wrote that “the climate crisis has exacerbated the extreme rainfall."

The World Weather Attribution initiative (WWA) has once again achieved its aim of using “real-time analysis” to draw attention to the issue: on its website, the institute says its goal is to “analyse and communicate the possible influence of climate change on extreme weather events." Frederike Otto, who works on attribution studies for the WWA, says these reports help to underscore the urgent need for climate action. They transform climate change from an “abstract threat into a concrete one."

In the immediate aftermath of a weather-related disaster, teams of researchers rush to put together attribution studies – “so that they are ready within the same news cycle," as the New York Times reported. However, these attribution studies do not meet normal scientific standards, as they are published without going through the peer-review process that would be undertaken before publication in a specialist scientific journal. And that creates problems.

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