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COVID-19: How policy can buffer the virus shock

February 28, 2020
Region:
Analyst:
In addition to absorbing a virus shock through the China export demand and supply chain channels, Europe now has to absorb a domestic outbreak. Voluntary steps to prevent the spread of the coronavirus (“social distancing”) as well as official containment measures are likely to disrupt economic activity. We expect disruption beyond northern Italy, an area which accounts for about 5% of euro area GDP. A temporary economic shock similar in scale to Hong Kong’s when SARS struck in 2003 would only need to occur in 10% of the euro area for area-wide GDP to stagnate in H1 and take the zone to the verge of technical recession. It is a highly fluid situation, but this might be a best case outcome. [more]

99 (97-99)
December 12, 2013
Region:
97
International criticism of Germany’s current account surpluses has reached new heights. The persistent surpluses are often seen as worsening, if not causing, the European crisis by impairing the peripherals’ capacity to export. Still, even taken individually, most arguments put forward do not hold water. As there is little evidence that Germany is manipulating relevant parameters, one should accept that the surpluses are the result of individual decisions of largely private agents in Germany and abroad. Politicians and commentators may be unhappy with the result, but they should not blame Germany. Rather, they ought to insist that the peripheral countries continue to improve their own competitiveness. Higher minimum wages and rising social security contributions will be a burden for the domestic economy in the medium term and hence weigh on import growth. [more]
November 26, 2013
Region:
98
The expansion of renewables, while a worthy long-term goal, is presently jeopardising German competitiveness. To prevent this, the Energiewende – i.e. energy turnaround or transformation – must be implemented more efficiently. We welcome government plans to impose a minimum levy on new systems for captive generation. To ensure the levy doesn’t also rise unsustainably, the subsidies should gradually be phased into market-based price and volume mechanisms. The government should tighten exceptions to the levy, while continuing to shield the energy-intensive companies most vulnerable to international competition. [more]
November 4, 2013
Region:
99
The current negotiations between CDU/CSU and SPD towards forming a government point to the implementation, for the first time, of a country-wide minimum wage of EUR 8.50 per hour. Empirical evidence suggests that the effect of a minimum wage is particularly toxic when it is brought to a level that is close to the median wage. This would mean higher wages for about 6 m workers (17% of all workers). A minimum wage will certainly impair the employment chances of groups which already have distinctively higher unemployment rates. If society or politicians do not want to accept the distributional effects of the market, this should be dealt with via taxation and transfers and not by interfering with wage setting. [more]
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