Germany risks relegating France to second Division

Sébastien Laye, Research Fellow at the Thomas More Institute

          

June 7, 2020 •


The means used by Germany to counter the crisis are unfortunately out of step with those granted by France, says Sébastien Laye, Research Fellow at the Thomas More Institute, in his column in Capital.


It is an intellectual procrastination very characteristic of the French elites to be sorry for the French delays in the face of the German ordo-liberal model:  a naïve fascination, which we have repeatedly denounced, because the economy does not make the entire economic model of a country and because each country has its specificities… But still, in the midst of the economic crisis, the French denial of the dark reality is evident when we compare the first stimulus plans announced… « Truth  below the Pyrenees, error beyond »  , or rather belowthe Rhine, we could say with Montaigne!

However, Germany’s aggressive response to the crisis risks putting us far behind it for several years:  already more virtuous in terms of public finances, Germany has approached this crisis with many reservations and room for manoeuvre to deal with it. Above all, it has been able to adopt the right strategy to fight the virus, with more testing and a more appropriate containment policy. It thus emerges less affected than France or Europe’shead of this healthcrisis. s However,the economic crisis does not spare him. It should be recalled here that German industry was in recession even before the  Covid crisis and that the latter was the catalyst for a generalized recession. Above all, the German export model suffered very early this year from the Chinese slowdown and then the closure of European markets (hence Mrs Merkel’s self-interested U-turn on European recovery plans).

Faced with this contraction in GDP (from 6% of GDP in 2020 to 10-11% expected in France), the Germans are not skimping on the means: while stricto sensu stimulus measures  (here we exclude simple loan guarantees or lag/deferrals of payments) represent 2.4% of GDP in France, we are already at almost 11% in Germany, for an otherwise higher GDP of 35%. Most of these measures, far from being confined to the emergency of the health system or to the treasury of companies, are already part of a real stimulus project at 12-24 months.

Consider, for example, some of these radically different measures from the French system:  in addition to 50 billion for the health sector (without waiting for the European appropriations potentially decided by the Commission that will not arrive on the ground for eightty months…) and a 50 billion plan for e-mobility and remote work, Germany announces a massive reduction in VAT and other taxes of around 35 billion euros!

Germany commits to a substantial fiscal stimulus from July 1, 2020. On the business side, beyond the measures as in France during the period of containment of support to the treasury or deferral of expenses, Germany provides 50 billion direct aid to micro and self-employed and a program of 100 billion euros to recapitalize companies that the crisis of the virus should have decimated… These 400 billion euros of injection of fresh money into the economy and post-containment investments-represent almost all of the only guarantees of loans and various aid announced in France… where France is planning measures to revive the crisis only at the start of the new year.

In the meantime, the French seem to be waiting too long for the hypothetical European stimulus fund, which will have to wait many months before being focused on baptismal fonts due todiscussions betweenmember states… Let us recall some  figures: of the 349 billion euros, only 5.9% will be mobilized in 2021, and the French quota is 10.38%: in other words, the impact of the European recovery in France in 2021 will only be… 2 billion euros.

The risk is that France will not react quickly enough to the contraction of GDP, just as in 2008, and still pay the price in 2021: while an energetic Germany will have partly come out of the rut on that date. After ten years of stronger growth on the other side of the Rhine, the balance of economic forces is not about to reverse…