Coronavirus Crisis: Economists Evaluate Shifted Priorities in Economic Policy Responses

On the previous Economists Panel, 67 percent of participants considered the level of the supplementary budget to be appropriate given the exceptional situation of the pandemic (Blum et al. 2020). The approval rate for the scope of the German federal government’s aid package has dropped to 60 percent on the current Economists Panel. Whereas only 6 percent of the previous Economists Panel judged the sum of the supplementary budget to be “too high,” now 18 percent of the economists judge the sum of the aid package, which has since grown in size, to be “too high,” citing inefficient use of funds. At the same time, only 4 percent of participants continue to demand more extensive measures. On the previous Economists Panel, that figure was 14 percent.

Increase in Short-Time Allowance Is Viewed Positively

Three-quarters of the economists view the staggered increase in the short-time allowance as “positive” or “fairly positive;” 69 percent also support the extension of the period of entitlement to unemployment benefits. As far as support for companies is concerned, 65 percent of economists are “positive” or “fairly positive” about investment grants. A full 90 percent of the economists are in favor of the expansion of tax loss carrybacks for companies. On the other hand, temporary reductions in value-added tax tend to be viewed negatively.

Economists Divided on Earlier Abolition of Solidarity Surcharge

The plan was to abolish the solidarity surcharge for 90 percent of taxpayers and reduce it for gross incomes between EUR 73,000 and EUR 109,000 (married couples: between EUR 151,000 and EUR 221,000) starting on January 1, 2021 (German Federal Ministry of Finance 2019). However, 53 percent of the economists on the panel are in favor of earlier action, while 41 percent see this as “negative” or “fairly negative.”

Purchase Incentives for Cars, Vacation Support, Family Bonuses, and Consumer Vouchers Are a Flop
Measures popular with politicians and effective in the media get short shrift from the participants on the Economists Panel: 89 percent of them consider a purchase incentive for new vehicles to be “negative” or “fairly negative.” Equally, 89 percent view financial support for vacations in Germany as “negative” or “fairly negative.” Meanwhile, 64 percent of the economists reject a one-time payment to families and 68 percent of them disapprove of consumer vouchers for local shops.

Everyone Should Benefit from Stimulus Measures

The economists generally take a critical view of support measures for individual sectors. Although 69 percent of the participating economists consider income compensation for creative artists to be “positive” or “fairly positive,” with the exception of this specific measure they call for efforts to be directed toward a revival of the economy as a whole.

Majority of Economists See No Threat to Long-Term Sustainability of German Public Finances

The national debt ratio is expected to rise from 59.8 percent at the end of 2019 (Bundesbank 2020) to an estimated 75.3 percent at the end of 2020 (German Federal Ministry of Finance 2020). Nevertheless, 62 percent of economists assess the risk to the long-term sustainability of German public finances as either “very low” or “low,” based on the low public debt ratio, the low interest burden, and responsible budgetary policy. However, 25 percent estimate the risk as “high,” and 12 percent even as “very high,” arguing that measures at the European level have not yet been taken into account, there is uncertainty about future economic development, and government spending is being used inefficiently.

Almost One-Third Favor Permanently Higher Government Debt

Some 29 percent of the economists on the panel do not want to finance the higher public debt arising from the coronavirus crisis. They argue that the additional loans are cheap because interest rates are low and that the government debt ratio will automatically fall again as a result of higher economic growth in the future. In contrast, 35 percent are in favor of a mixture of financing the debt through higher tax revenue and lower government spending, as this is the best way to distribute the burden over time. Future spending cuts find favor with 20 percent of the economists, who cite the high pre-crisis level of government spending, potential positive growth effects from consolidation, and the potential for future tax cuts. Financing the higher debt through higher tax revenue is the option advocated by 7 percent of the participants, who justify their view based on the potential for reducing income inequality and on the assumption of higher economic growth and consequently higher tax revenue. Meanwhile, 6 percent of economists cite other measures to counteract the higher national debt, such as efforts to reduce the regulatory burden and programs to promote growth.

Disagreement over Whether EU States Should Jointly Incur Debt

Discussions about aid measures for EU states (the Merkel Macron Fund and the plan of the “frugal four”) have reignited controversies about joint borrowing at the European level. Among the panel’s participating economists, 35 percent support moves for EU states to jointly incur debt, 38 percent reject such moves, and 26 percent are “undecided.” Proponents speak of an important sign of European solidarity in view of the plight of some countries and the need to preserve the European Economic Area. Opponents justify their decision by saying that this would set the wrong incentives and that there is no authority for such action at the European level. Moreover, joint borrowing does nothing to resolve each individual country’s structural problems. Those who are undecided point to the exceptional circumstances of the coronavirus crisis, the temporary nature of the debt incurred, and the difficulty of enforcing the time limit.

Aid for EU States Should Take the Form of Loans and Non-repayable Grants

Half of the economists would like the help offered to EU states in need to be a mix of loans and non-repayable grants. They argue that while it is important for countries in need of assistance to help themselves, it is also important not to overburden their budgets. One-quarter of the economists favor offering only non-repayable grants, because nobody is to blame for these exceptional circumstances and because it would not be expedient for certain countries to take on additional loans in view of their already high debt levels. In contrast, 9 percent want aid for EU states to be made up exclusively of loans so as to avoid setting the wrong incentives. Meanwhile, 6 percent call for other measures such as direct medical aid, a restructuring of the EU budget, or the introduction of a tax whose revenue could be paid out to EU states in need. Finally, 8 percent do not want to provide any help at all, on the basis that the measures are the responsibility of the countries themselves.

German general government debt down in 2019 by €16 billion to €2.05 trillion – debt ratio down from 61.9% to 59.8%

Bundesbank (2020)
(accessed June 1, 2020)