In view of the coronavirus pandemic the German economy is heading towards a bigger recession in the second quarter than during the financial crisis in 2009. In an IMFS Policy Webinar on April 8, he presented the scenarios of the German Council of Economic Experts‘ special report. According to the report, a shutdown of five weeks and a recovery of three weeks would be manageable. However, “at the moment it does not look like this is going to happen,” Wieland warned. In comparison to the end of March – the publication date of the special report – the probability for a risk scenario with a pronounced V has increased.
The coronavirus pandemics at the same time hurts supply and demand. On the supply-side of the economy, the supply chains were disrupted and industrial inputs for chemical products or in the engineering industries could not be delivered. On the other hand, the demand for services in tourism, for events or in the catering sector were reduced due to quarantine measures. Therefore, according to Wieland, a conventional stimulus package is not helpful. “It is not a matter of stimulating demand but of maintaining capacities by offering credits or liquidity.” In his view, a capital levy would also be the wrong measure, hurting mostly medium-sized companies. “This would counteract all rescue packages,” Wieland warned. Instead, he called for discussing an exit strategy ugently. “We have to establish rules for our health as a basis for ramping up production again.” He argued that a task force made up of experts of various disciplines could help in this process.
Wieland rejected so-called corona bonds, mutualized debt without any influence on the spending. This could lead to hard disputes between the member states, Wieland warned. He rather recommended the European Stability Mechanism (ESM). Regarding the stigma states such as Italy were afraid of, he recommended several states to make use of a credit line with the ESM simultaneously. In Wieland’s opinion, the interventions of the Euorpean Central Bank (ECB) that announced the Pandemic Emergency Purchase Programme (PEPP) on March 18 are only a temporary support. The ECB has delivered in advance and can only reduce the spreads of various countries during a certain time, Wieland argued.
Presentation (in German) "Die gesamtwirtschaftliche Lage angesichts der Corona-Pandemie" (PDF)
Watch the video of the webinar