Pointing the Way Forward

Germany has received international praise for the early measures it took to limit the negative economic effects of the coronavirus pandemic. But how much of this was down to government policy? We take a closer look.

October, 2020

At the core of Germany’s response to Covid-19 has been the realization that public health policy is a sine qua non for economic revival. As far back as April 9, in a joint press conference, German Minister for Economic Affairs and Energy Peter Altmaier and German Health Minister Jens Spahn underlined that “health protection is the top priority.”

This coordinated approach has limited the harm to Germany’s economy as well. Cooperation between the chancellor’s office, the national ministries and the 16 regional states that make up the Federal Republic of Germany helped keep coronavirus restrictions relatively moderate and allowed them to be eased sooner than in many other countries in the EU.

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Even so, the damage was significant. The same as many other nations, Germany suffered record drops in economic activity as a direct result of the lockdown. Immediate action to halt the downturn was necessary, and indeed it was already under way.

A helping hand

By the end of March 2020, when the extent of the crisis had become clear, the federal government put together a package of grants and emergency lines of credit from Germany’s developmental bank, the KfW, to ensure liquidity for small to medium-sized enterprises (SMEs). No upper limit was imposed on the program. In its first hundred days, almost EUR 50 billion was loaned out to 69,278 applicants. The vast majority were SMEs, which generate 98 percent of Germany’s gross revenue.

Thus far, the government’s measures have had the desired effect. The Business Climate Index of the economic think tank Institute for Economic Research (ifo) immediately recorded its biggest-ever rise from May to June 2020, and most experts are predicting robust growth for 2021.

Companies like farm equipment maker CLAAS credit the government’s measures with helping them to survive and even innovate during the crisis.

“The corona period made us quicker and more digital and increased the feeling of togetherness among our employees – we were able to accelerate innovations and continue talking with customers despite all of the limitations,” says CLAAS CEO Thomas Böck. “Stable government structures that function even during times of crisis are especially important for companies.”