Statement EES President Dr Ingo Friedrich, May 5, 2020
How will the so-called “new normalcy” (after the end of the acute Corona crisis) that all observers are now talking about look like? I, for one, see us faced with the following trends in the economic sector:
- The will not be a significant increase of the inflation rate in spite of the governmental billons. This is due to the expected economic recovery building momentum very slowly. And: the governmental aids are only partly compensating the breakdowns and losses already visible right now and therefore have no inflationary effects. In fact, there are rather deflationary developments to be expected over the next months.
- The feared wave of bankruptcies in small and midsized companies will lead to a painful process of concentration, the motto being “the large ones will become larger” and many small “solo entrepreneurs” will (unfortunately) be erased from the market entirely. All governmental aids that intervene by promoting SMEs are well invested money.
- There will be a multitude of new ideas and formats of novel enterprises and start-ups. All things having to do with digitalisation, home office, video conferencing, video seminars, home deliveries and similar open up completely new product ideas. Moreover, because of the new health and hygiene problems (a new pandemic cannot be ruled out) new laws and regulations are to be expected which also necessitate completely new services and products. Only think of large areas like buildings, schools, hotels, restaurants, and also all venues where in the future gatherings of people will have to take place under completely new conditions.
- The crisis unfortunately will not lead to a principally meaningful and improved international cooperation. In fact, it will further spur on national egotism and the individual nations will lead an even more intense fight for a global “place in the sun”. The globalisation of the international economy will not be stopped by this, but significantly hampered.
- Well managed countries will be able to cope with and overcome the expected exorbitant state debts, if under pain. In Germany, for example, the dept-to-GDP ratio - also taking into account aids to EU member states - will rise from 60 to 80 percent, worst case 90 percent. That is not pleasant and also not easy, but nevertheless manageable. The picture is quite different for countries with large initial problems: national bankruptcies, massive social problems, and as a result the breakdown of entire markets are unfortunately to be expected. Especially the African and South American countries are in focus here. Even generous programmes and debt relief will not be able to change much about this.
- In a world that has become small in the 21st century the image of a state is becoming an increasingly important economic factor. Just imagine a second similar pandemic coming out of China. All affected countries would then send immense bills to China and international courts would lead gigantic court proceedings against China. Even the number one growth country, namely China, could not “afford” such a damage to its image.
- Given the current failure of the USA as leading and peacekeeping power, Europe would have the great chance, in fact the duty as reliable and human rights committed power of peace to take on a global role as global stability factor. More global stability would at the same time help all states - thus also the Europeans - to overcome the current challenges. The question is only if we are ready for this or if we Europeans still want to mostly go our own way à la Brexit.
- Great statesmanship in the current phase of the crisis entails organising the absolutely necessary easing of restrictions as intelligently as possible (to further reduce infections) and at the same time as effectively and economically supportive. A thoughtful and co-creative public is of incalculable value in this.
- By comparison to other states, Germany has thus far done an outstanding job in overcoming this crisis. This should give us hope that the start into the new normal will be just as successful.
- Every crisis brings with it new risks, but also new chances. May we be given the wisdom to differentiate one from the other and act accordingly.