Geopolitics

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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Future

7 Ways The Pandemic May Change The Airline Industry For Good

Will flying be greener? More comfortable? Less frequent? As the world eyes a post-COVID reality, we look at ways the airline industry has been changing through a pandemic that has devastated air travel.

Ready for (a different kind of) takeoff?

Carl-Johan Karlsson

It's hard to overstate the damage the pandemic has had on the airline industry, with global revenues dropping by 40% in 2020 and dozens of airlines around the world filing for bankruptcy. One moment last year when the gravity became particularly apparent was when Asian carriers (in countries with low COVID-19 rates) began offering "flights to nowhere" — starting and ending at the same airport as a way to earn some cash from would-be travelers who missed the in-flight experience.

More than a year later today, experts believe that air traffic won't return to normal levels until 2024.


But beyond the financial woes, the unprecedented slowdown in air travel may bring some silver linings as key aspects of the industry are bound to change once back in full spin, with some longer-term effects on aviation already emerging. Here are some major transformations to expect in the coming years:

Cleaner aviation fuel

The U.S. administration of President Joe Biden and the airline industry recently agreed to the ambitious goal of replacing all jet fuel with sustainable alternatives by 2050. Already in a decade, the U.S. aims to produce three billion gallons of sustainable fuel — about one-tenth of current total use — from waste, plants and other organic matter.

While greening the world's road transport has long been at the top of the climate agenda, aviation is not even included under the Paris Agreement. But with air travel responsible for roughly 12% of all CO2 emissions from transport, and stricter international regulation on the horizon, the industry is increasingly seeking sustainable alternatives to petroleum-based fuel.

Fees imposed on the airline industry should be funneled into a climate fund.

In Germany, state broadcaster Deutsche Welle reports that the world's first factory producing CO2-neutral kerosene recently started operations in the town of Wertle, in Lower Saxony. The plant, for which Lufthansa is set to become the pilot customer, will produce CO2-neutral kerosene through a circular production cycle incorporating sustainable and green energy sources and raw materials. Energy is supplied through wind turbines from the surrounding area, while the fuel's main ingredients are water and waste-generated CO2 coming from a nearby biogas plant.

Farther north, Norwegian Air Shuttle has recently submitted a recommendation to the government that fees imposed on the airline industry should be funneled into a climate fund aimed at developing cleaner aviation fuel, according to Norwegian news site E24. The airline also suggested that the government significantly reduce the tax burden on the industry over a longer period to allow airlines to recover from the pandemic.

Black-and-white photo of an ariplane shot from below flying across the sky and leaving condensation trails

High-flying ambitions for the sector

Joel & Jasmin Førestbird

Hydrogen and electrification

Some airline manufacturers are betting on hydrogen, with research suggesting that the abundant resource has the potential to match the flight distances and payload of a current fossil-fuel aircraft. If derived from renewable resources like sun and wind power, hydrogen — with an energy-density almost three times that of gasoline or diesel — could work as a fully sustainable aviation fuel that emits only water.

One example comes out of California, where fuel-cell specialist HyPoint has entered a partnership with Pennsylvania-based Piasecki Aircraft Corporation to manufacture 650-kilowatt hydrogen fuel cell systems for aircrafts. According to HyPoint, the system — scheduled for commercial availability product by 2025 — will have four times the energy density of existing lithium-ion batteries and double the specific power of existing hydrogen fuel-cell systems.

Meanwhile, Rolls-Royce is looking to smash the speed record of electrical flights with a newly designed 23-foot-long model. Christened the Spirit of Innovation, the small plane took off for the first time earlier this month and successfully managed a 15-minute long test flight. However, the company has announced plans to fly the machine faster than 300 mph (480 km/h) before the year is out, and also to sell similar propulsion systems to companies developing electrical air taxis or small commuter planes.

New aircraft designs

Airlines are also upgrading aircraft design to become more eco-friendly. Air France just received its first upgrade of a single-aisle, medium-haul aircraft in 33 years. Fleet director Nicolas Bertrand told French daily Les Echos that the new A220 — that will replace the old A320 model — will reduce operating costs by 10%, fuel consumption and CO2 emissions by 20% and noise footprint by 34%.

International first class will be very nearly a thing of the past.

The pandemic has also ushered in a new era of consumer demand where privacy and personal space is put above luxury. The retirement of older aircraft caused by COVID-19 means that international first class — already in steady decline over the last decades — will be very nearly a thing of the past. Instead, airplane manufacturers around the world (including Delta, China Eastern, JetBlue, British Airways and Shanghai Airlines) are betting on a new generation of super-business minisuites where passengers have a privacy door. The idea, which was introduced by Qatar Airways in 2017, is to offer more personal space than in regular business class but without the lavishness of first class.

Aerial view of Rome's Fiumicino airport

Aerial view of Rome's Fiumicino airport

commons.wikimedia.org

Hygiene rankings  

Rome's Fiumicino Airport has become the first in the world to earn "the COVID-19 5-Star Airport Rating" from Skytrax, an international airline and airport review and ranking site, Italian daily La Repubblica reports. Skytrax, which publishes a yearly annual ranking of the world's best airports and issues the World Airport Awards, this year created a second list to specifically call out airports with the best health and hygiene standards.

Smoother check-in

​The pandemic has also accelerated the shift towards contactless traveling, with more airports harnessing the power of biometrics — such as facial recognition or fever screening — to reduce touchpoints and human contact. Similar technology can also be used to more efficiently scan physical objects, such as explosive detection. Ultimately, passengers will be able to "check-in" and go through a security screening anywhere at the airports, removing queues and bottlenecks.

Data privacy issues

​However, as pointed out in Canadian publication The Lawyer's Daily, increased use of AI and biometrics also means increased privacy concerns. For example, health and hygiene measures like digital vaccine passports also mean that airports can collect data on who has been vaccinated and the type of vaccine used.

Photo of planes at Auckland airport, New Zealand

Auckland Airport, New Zealand

Douglas Bagg

The billion-dollar question: Will we fly less?

At the end of the day, even with all these (mostly positive) changes that we've seen take shape over the past 18 months, the industry faces major uncertainty about whether air travel will ever return to the pre-COVID levels. Not only are people wary about being in crowded and closed airplanes, but the worth of long-distance business travel in particular is being questioned as many have seen that meetings can function remotely, via Zoom and other online apps.

Trying to forecast the future, experts point to the years following the 9/11 terrorist attacks as at least a partial blueprint for what a recovery might look like in the years ahead. Twenty years ago, as passenger enthusiasm for flying waned amid security fears following the attacks, airlines were forced to cancel flights and put planes into storage.

40% of Swedes intend to travel less

According to McKinsey, leisure trips and visits to family and friends rebounded faster than business flights, which took four years to return to pre-crisis levels in the UK. This time too, business travel is expected to lag, with the consulting firm estimating only 80% recovery of pre-pandemic levels by 2024.

But the COVID-19 crisis also came at a time when passengers were already rethinking their travel habits due to climate concerns, while worldwide lockdowns have ushered in a new era of remote working. In Sweden, a survey by the country's largest research company shows that 40% of the population intend to travel less even after the pandemic ends. Similarly in the UK, nearly 60% of adults said during the spring they intended to fly less after being vaccinated against COVID-19 — with climate change cited as a top reason for people wanting to reduce their number of flights, according to research by the University of Bristol.

At the same time, major companies are increasingly forced to face the music of the environmental movement, with several corporations rolling out climate targets over the last few years. Today, five of the 10 biggest buyers of corporate air travel in the US are technology companies: Amazon, IBM, Google, Apple and Microsoft, according to Taipei Times, all of which have set individual targets for environmental stewardship. As such, the era of flying across the Atlantic for a two-hour executive meeting is likely in its dying days.

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