Gearbox assembly at ZF Friedrichshafen in May: Long way back to normal
Photo:Felix Kästle / DPA
Things are picking up again: the economy in Germany has risen sharply again after the corona shock, according to the Bundesbank. "From today's perspective, the clear and broad-based recovery in overall economic performance, which began after the low point in April, will continue."
The way back to normal is still a long way, write the central bankers. "Regardless of the ongoing catch-up movement, the pre-crisis level will, however, still fall significantly short in the summer quarter and beyond."
The international situation weighs on German exports
The German economy slumped 10.1 percent in the second quarter. In the course of the growth now expected for the third quarter, the Bundesbank estimates that investments in equipment should also recover. A solid contribution to the recovery of the economy as a whole can also be expected from private consumer spending. It is crucial that the pandemic-related restrictions have been significantly relaxed. In addition, the situation on the labor market has stabilized somewhat. Fiscal policy measures such as the temporary VAT cut would have boosted consumers' buying mood and their incomes.
At the same time, the Bundesbank warned that the pandemic had not yet been contained in many countries internationally. "This affects German exports." In addition, the high level of uncertainty with regard to the further course of the infection is dampening the willingness of companies to invest at home and abroad. This in turn is likely to "stand in the way of a comprehensive recovery in demand for German industrial products," explained the Bundesbank experts. Until a medical solution - such as a vaccination - is available, "economic activity in some domestic service industries will remain limited".
In order to cushion the economic consequences of the crisis in Europe, the EU states agreed on a multi-year financial framework in July, which also includes a debt-financed extra budget to deal with the consequences of the corona. This provides for both loans and non-repayable grants for individual EU countries.
"Borrowing not foreseen at EU level"
This planned joint debt of the EU is a "worrying novelty", criticized the Bundesbank. "Borrowing at the EU level is not actually provided for in the EU treaties." In order to keep liability and control in balance, a much greater degree of integration in the EU would be necessary, warns the Bundesbank.
Bundesbank welcomes this solidarity approach in principle, but complains that "the growth-promoting effect of EU funds in the past has shown a mixed picture." At the moment, financial policy is largely a matter for the EU member states.
In addition, central bankers point out that EU borrowing comes at a cost. "The EU debt will burden future European taxpayers, even if the debt is not reflected in the national statistics." Interest and repayment are still to be paid by the member states. "These new obligations from the EU debt should therefore be included in the assessment of national public finances."
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