IW-Kurzberichte are short technical publications. They deal with current topics and are published exclusively online.
The EU-27 suffered a hard, economic hit by the Covid-19 crisis. The EU Commission is now primarily trying to support Southern and Eastern European countries. The proposed 750 billion euro stimulus is not so much aimed at counteracting the economic corona crisis but should rather be understood as a long-term growth package – coinciding with the EU’s sluggish nature and supranational purpose.
The coronavirus pandemic is likely to result in Germany’s largest economic downturn in the last seven decades. Clarity as to the extent and course of the current adverse effects on business activity is being sought based on the regular business survey by the German Economic Institute (IW). Since there has so far been no fundamental differentiation between businesses’ short and medium-term outlook, the coronavirus crisis is set to cast a long shadow over the German economy.
Various European instruments for countries particularly affected by the Corona crisis are currently under discussion. In this article several requirements will be established and the existing proposals will be measured against them. The instrument of Corona bonds is considered most effective – provided that German policymakers accept the risk-sharing associated with them.
The Corona crisis has clearly become an economic challenge for Europe. The spread of the virus represents both a negative supply shock and a negative demand shock across the economy at large. Securing the liquidity of companies is of top priority. Employment and household income can be stabilised through short-time allowances.
It has now been 50 years since Apollo 11 landed on the moon. On 20 July 1969 (21 July German time), Neil Armstrong and Edwin “Buzz” Aldrin became the first people to land on the moon. It marked a decisive victory in the space race between the United States and the Soviet Union.
The current account surplus in Germany has grown rapidly especially since the early 2000s and this development has been widely criticised. One of the recommendations of the European Commission and other institutions is to increase public investment as a means to reduce the current account surplus. Indeed, Germany needs a broad investment programme in the field of infrastructure, digitalisation and education, and considering the low interest rate there cannot be better times for it.
Politicians accuse corporations of sneakily shifting their profits to tax havens. In fact, tax revenues in low-tax countries such as Ireland and Malta have risen sharply over the past 20 years. However, revenue growth in large countries like Germany and France is not slow. Interestingly, EU countries which favor the unanimity rule in tax issues show higher growth rates in tax revenue than countries preferring a qualified majority system.
EU Member States used the economic upturn of recent years to implement reforms to a different extent. The Eurozone countries focused on demand-sided measures, whereas the Visegrád countries mostly chose supply-sided reforms. Within both of these groups a great deal of heterogeneity can be observed regarding the implementation of structural reforms aimed at increasing their long-term growth potential.
In contrast to a massive current account deficit against China, the US runs a current account surplus with respect to the European Union. The US-EU surplus is largely driven by a positive service balance and primary incomes originating from US investments abroad. Services and primary incomes overcompensate the US goods trade deficit with the EU. Rather than representing a “rip–off”, the different balances reflect the economies’ different business models.
Up until the economic and financial crisis, economic conditions in the European regions had been converging. This process has come to a complete standstill in recent years due to lower growth in Eastern Europe and stagnation in Southern Europe.