By Benjamin Bidder, Felix Bohr, Anna Clauß, Jürgen Dahlkamp, Ullrich Fichtner, Jan Friedmann, Annette Großbongardt, Martin Knobbe, Marcel Rosenbach, Michael Sauga, Cornelia Schmergal, Thomas Schulz, Gerald Traufetter and Steffen Winter
The storm has already begun ravaging several countries, but in many others, it is still approaching. The coffins are piling up in Bergamo, while in Wuhan, they are counting their graves. Hospitals in Madrid, Paris and Tehran are struggling to keep up, and the virus is racing through the population of New York. In India, the government has asked its 1.3 billion people to observe a 21-day quarantine. The black clouds of COVID-19 are gathering over Africa and the Americas.
People say it is impossible to predict coming events, but when an existential threat appears, our attention turns to the future. Will I become infected? Will my mother survive? For how long will this virus be present? How many people will die? How much damage will it cause? Will I still have work when it is over? Will my company survive the next six weeks? How long can the children stand being cooped up in the apartment? How long will I have to stay at home?
They are huge, frightening questions – made all the more scary by the fact that they have no answers. And because life still has to go on. Somehow.
When faced with an invisible threat, enlightened societies turn to scientists and researchers – virologists and mathematicians, epidemiologists and statisticians, economists, psychologists, sociologists and therapists. They can’t see the future either, but they know rules, laws and patterns that could at least shine a bit of light into the current darkness.
Governments around the world are now poring over expert advice and examining models and scenarios. Faced with forecasts of large numbers of deaths and a potential collapse of health-care systems, countries have closed borders and ordered entire populations to stay at home.
Already, though, another question has begun demanding our attention: For how long can we continue like this? How long can the economy survive? How can we resolve the tension between public and economic health? From an ethical perspective, it is impossible to balance economic growth against physical wellbeing. But should a healthy economy be ruined in pursuit of the ideal response envisioned by virologists and other medical professionals.
And how long can democracies limit people’s freedoms to the degree we are currently experiencing? Germany hasn’t yet been completely shut down, but Italy, Spain and France have. For what length of time can the people of those countries be prohibited from going out?
In Germany, our constitutional rights have been limited – in a way never before seen in peacetime – since Monday. The measures imposed by federal and state governments to limit contact between people have brought public life to a standstill, initially for a period of two weeks. The country has continued to operate, but at a much lower level, with the economy, society and the government all being run from kitchen tables across the country.
Germany’s new rules on social contact emerged from consultations with virologists and pandemic experts. Only social distancing, the experts advised, can slow the pandemic and prevent the collapse of the health-care system. The horrific images from Italy and Spain have focused everyone’s attention on scientists. But researchers contradict each other, arrive at conflicting conclusions despite looking at the same set of numbers and have differing views on what the curves mean. Science, after all, is partly a confrontation with the unknown.
That’s why politicians in Germany and elsewhere are currently trying to strike a difficult balance. On the one side are those who endorse strict measures, invoking the numbers released daily by the Robert Koch Institute (RKI) in Germany and Johns Hopkins University in the U.S. As long as the rise in the number of infections and deaths doesn’t slow, they argue, rigorous measures must be kept in place, including limits on going outside, as well as school and store closures. Several governors in Germany, including Markus Söder in Bavaria, Winfried Kretschmann in Baden-Württemberg and Tobias Hans in Saarland, all of whom are enjoying rising public approval ratings, are preaching the advantages of such stringent measures.
Then there are those who support a more measured response. They, too, are looking at the numbers and support strict measures. But they also consider additional factors, such as: How are people affected by the extended isolation? For how long can contact bans be maintained? This group tends to favor waiting a few days after appeals are made and measures are implemented to examine their effect – and only then consider imposing even stricter regulations. German Chancellor Angela Merkel is part of this group, as is her chief of staff, Helge Braun. They are joined by Armin Laschet, governor of Germany’s most populous state, North Rhine-Westphalia. In recent weeks, they have frequently acceded to the hardliners.
A package delivery truck in Munich: The measures adopted to stem the spread of the virus carry a high societal and economic cost.
LUKAS BARTH-TUTTAS / EPA-EFE / SHUTTERSTOCK
German Interior Minister Horst Seehofer identifies as a hardliner, and says he is in favor of strict methods. He says that his view is informed first and foremost by scientific and medical findings. Two weeks ago, he invited Lothar Wieler, president of the Robert Koch Institute – Germany’s leading agency responsible for disease control – along with Christian Drosten, the virologist from Berlin’s Charité university hospital, for lunch at his ministry. He partly wanted to discuss whether it would be sensible to close intra-European borders. One of the experts suggested that, instead of using police to patrol the border, it would be more productive to have them deliver groceries to seniors and those suffering from pre-existing conditions in order to help protect those most at risk.
Seehofer decided to shut the borders anyway. As a politician, he says, you can’t completely rely on science, because researchers also have differences of opinion. He says that became clear during the discussion as to whether schools should be closed. During the lunch in the Interior Ministry, Drosten advised against it because it would mean many doctors and nurses would be forced to care for their own children instead of going to work, an eventuality, he argued, that would be worse than leaving schools open. But by the time Drosten joined a meeting of the chancellor and German state governors the next evening, he had changed his mind. New data had convinced him, he says, that school closures were, in fact, sensible.
Seehofer outlines three additional criteria that guide him. First, the legal code. In laws pertaining to epidemic response, the code outlines the need for prevention, identification and slowing spread. The latter, Seehofer says, is of paramount importance to him. The second criterion is the political experience gathered by those who have spent many years in public office. Seehofer has navigated numerous crises — contaminated blood supplies, bird flu, swine flu and the widespread sale of spoiled meat, to name a few. Every crisis is different, he says, but there are still broader lessons that can be applied: rigorous measures, he says, are best, which is why he ordered his ministry’s health department way back on February 10 to keep a close eye on the coronavirus.
Third, Seehofer identifies his own personal experiences as a basis for decision-making. “I know how incredibly powerless you can feel after a viral infection,” he says. In 2002, he almost died from flu complications and spent almost a year suffering from heart inflammation. “You will understand that saving human lives is my highest priority,” he says.
Suppression vs. Mitigation
And yet, numbers and scientific scenarios remain the most important bit of guidance for politicians. For Seehofer, it was the London Imperial College study on intervention strategies to combat coronavirus that looms largest. It identified two possible paths for dealing with pandemics. With “suppression,” the focus is on trying to prevent a further spread of the virus – essentially an effort to starve it to death. “Mitigation,” meanwhile, focuses on slowing the spread so that health-care systems have sufficient time to prepare. “I am a decisive supporter of suppression, even if that path is significantly more expensive,” Seehofer says. “But it saves the most lives.”
He recently commissioned a classified Interior Ministry study entitled, “How We Can Get COVID-19 Under Control.” It sought to determine at what point a health crisis might morph into a systemic crisis for the state. Several scientists helped develop a number of different scenarios.
The worst-case scenario is as follows: The state does very little, leading quickly to a situation in which 70 percent of the population is infected and more than 80 percent of critical patients must be turned away from overloaded hospitals and over a million people die in Germany. An additional scenario foresees the strict prevention of new infections using extensive testing and stringent isolation of those infected.
It argues that the number of tests has to be increased in coming weeks, and that mobile testing sites must be set up to achieve that goal. “To ensure that testing becomes quicker and more efficient,” the study reads, “the use of Big Data and location tracking is unavoidable on the long term.”
If this model is followed, around a million people in Germany would become infected and only around 12,000 would die, an optimistic scenario given the current situation. It would require keeping strict measures in place for two months. But because only a small share of the population would then be immune to the virus, “extreme vigilance would have to be maintained,” the study points out. Seehofer sees the study as a confirmation of his approach. He is opposed to a “balancing out” of the measures.
Still, the German government is continually evaluating how long the crisis will last. Will it be enough to leave the stricter measures in place until Easter and then begin easing them? “At some point, the time will come to move toward protective isolation,” says Chancellery Chief of Staff Helge Braun, who is also coordinating the government’s coronavirus response. When that happens, he says, the younger and healthier part of the population will be able to resume something approaching normalcy. Only seniors and those with pre-existing conditions would have to continue living with significant restrictions. Braun is describing a major shift in strategy. The “balancing out” that Seehofer rejects would become reality.
Many politicians in Berlin are eager to be seen as having recognized the danger early on. But for far too long, the coronavirus was seen as a distant crisis that China would somehow get on top of. Many weeks have passed since January and February. In many places, those weeks were wasted, as officials took a wait-and-see approach. In Germany, this phase lasted well into March, until the government finally introduced border controls on March 16. Germany’s federal police force had proposed such a measure on Feb. 22, three weeks before it was finally implemented.
A drive-in testing site in Saarbrücken: Germany’s health minister is looking around the world for best practices.
BECKER & BREDEL / IMAGO IMAGES
Since that time, air-passenger numbers have plunged by 80 to 90 percent. Overland entries have gone down by a similar proportion. “We have slashed travel,” says one federal police officer. That also applies to illegal entries, with the police force only counting 10 such entries on Monday. And stricter measures are coming: Soon, all German border crossings will be monitored, as will flights from a growing list of countries.
These are, as everybody knows, exceptional circumstances – and German Health Minister Jens Spahn said as much in an inspirational message sent by video on Tuesday to his staff. Spahn, too, is taking a close look at when and how the current situation can be brought to an end. He says it will depend entirely on the facts, and notes that he is strictly following the advice given him by RKI President Wieler, with whom he speaks on a daily basis. Wieler is Spahn’s most important adviser in this crisis. And when Wieler was asked on Monday when he might recommend that the current, rigid guidelines be loosened, he said, “This is an event for which there is no blueprint.”
The only thing that is clear at the moment is that the spread of the virus must be slowed to the point that Germany’s hospitals can adequately deal with the number of people experiencing severe symptoms. Wieler has recommended doubling the number of intensive care beds in the country from the current level of 28,000 to at least 56,000 – a measure that was included in the emergency plan hammered out last week between the federal government and the country’s 16 states.
It will be difficult to determine whether the limits on freedom of movement are having an effect. It will be easier to check if social limitations are being observed. To do so, the RKI is using the anonymized data of 46 million Deutsche Telekom customers.
Health Minister Spahn would have liked to follow South Korea’s example and go even further. In the revised Protection against Infection Act, which was passed in German parliament on Wednesday, he had wanted to include a passage allowing the collection of movement data from people with verified coronavirus infections – without anonymization. That would have made it easier for health officials to identify possible contact people and to issue more precise warnings on the risk of infection. But the passage was cut due to data protection concerns. Spahn regrets the decision because, he argues, such data would have made it easier to organize the rollback of quarantine measures, as the example of South Korea has shown.
Indeed, Spahn is looking around the world in an effort to determine best practices. The lesson from Italy, he says, is that politicians must speed up efforts to acquire sufficient treatment capacity and enough ventilators. China has shown that the spread of the virus can be stopped by sealing off major metropolitan areas, but also that this form of house arrest comes at a high price, including fear, isolation, depression and domestic violence.
Policymakers are constantly weighing these issues against one other. There is abstract data, and then there are the realities of daily life that cannot be neatly packed into statistics. How can you balance infection rate against constitutional rights? Case numbers against political values? A new threat against tried-and-true democratic traditions?
Spahn is constantly considering such questions. Last week, he even called Peter Dabrock, head of the German Ethics Council, to ask him for his view on the current options. Dabrock’s response landed on Spahn’s desk on Thursday afternoon, a paper entitled “Solidarity and Responsibility in the Corona Crisis.” In it, experts from the Ethics Council speak of a “core ethical conflict” pitting the need to protect the health-care system from collapse against the need to limit the consequences of the response on society at large. They represent, to use a technical term, “competing moral values.”
The council painted the consequences of an extended, unlimited lockdown in stark terms. The paper argues that the deep freeze of public life could lead to “systemic risks” to almost all parts of society, from science and education to culture and sports. In particular, though, the measures’ side effects could endanger the health “and even the lives” of people in certain risk groups.
Those groups primarily include people whose treatment has to be interrupted due to the increased focus on corona patients, people who rely heavily on child and youth welfare services or on facilities for the disabled, and people who live in care homes. That also applies to people “threatened with social isolation” and women and children at risk of domestic violence. The Ethics Council is also concerned about “a widespread loss of prosperity” and a “collapse of the market economy system.”
It recommends politicians continually monitor whether the measures are necessary and whether they are appropriate – and when they can be brought to an end. “A close corollary is the need to explain to the public how and under what conditions the path back to a state of normalcy can be followed.”
In a statement, the Ethics Council warned against leaving the decision about future steps entirely up to virologists and epidemiologists. “The questions that must now be clarified affect all of society. They cannot be delegated to individual people or institutions,” the statement reads. “Painful decisions in particular” have to be made by elected officials. “The corona crisis is the hour of democratically legitimized decision-making.”
All levels of decision-making are currently taking things one step at a time. The World Health Organization (WHO) is trying to monitor the global situation while the German government and its institutions are looking for national answers. Local officials are also doing what they can in the fight against the pandemic. In Germany’s federal system, they have considerable responsibility.
Bernd Wiegand is the mayor of Halle an der Saale, a city just north of the eastern German city of Leipzig. In mid-March, he didn’t particularly care that Germany’s federal government advised against school closures at the time. He went ahead with a general decree to shutter not just the schools, but also daycare centers, theaters, opera houses, orchestras and the local university. Halle became the first large city in Germany to impose such drastic measures.
In hindsight, Wiegand’s move is all the more notable because the city only had seven confirmed infections at the time, and the state in which it is located, Saxony-Anhalt, was not among the areas acutely threatened. The mayor justified his approach by insisting that the danger was approaching and that he acted not quickly, but “responsibly.” He had assembled a response team by Feb. 28, before a single coronavirus case had been identified in his city.
The mayor relied on local expertise and sought out the views of Alexander Kekulé, a virologist who teaches in the city and who has since become well-known across Germany. By midday Thursday, the city had 104 confirmed coronavirus cases and climbing. Sixteen of the patients were in hospital and three were on respirators. It remains to be seen whether Halle will emerge victorious in the battle against the virus. “The numbers don’t yet allow for a clear prognosis,” Wiegand says.
Mayor Peter Tschentscher of the city-state of Hamburg has spent much of his time recently speaking with former colleagues on the phone, particularly those at the University Clinic Eppendorf (UKE), where he worked until recently as chief physician. Tschentscher is the only head of a German state with a medical background. He wrote his dissertation on the immunochemical properties of protein structures and likely has a pretty good understanding of the medical questions surrounding the current corona crisis.
Tschentscher has also been speaking with people he once went to university with, saying he wants to “get a feeling for whether our decisions are consistent with what the medical world is experiencing.” Such conversations help determine “if we are on the right track,” he said in a Wednesday telephone conversation. He cautioned, however, that he was an expert in laboratory medicine and not a virologist or epidemiologist.
The crisis-response center at Germany’s Foreign Ministry: “The numbers don’t yet allow for a clear prognosis.”
BERND VON JUTRCZENKA / DPA
For that reason, Tschentscher is careful about making predictions, particularly when it comes to the critical question as to how long it all might last – the lockdown, the tight reins on the economy and the suspension of certain democratic rights. Although his counterpart from Lower Saxony, Stephan Weil, hinted mid-week that small steps toward normalcy could begin after Easter, Tschentscher said: “Whether we can do so will depend heavily on expert appraisals.” And if strict measures are to be lifted, it will have to be done extremely carefully. “We can’t risk returning to a problematic dynamic of the pandemic.”
Easter as a Bellwether
At the moment, everyone is looking to Easter. All schools and daycare centers in the country will remain closed at least until then. Manuela Schwesig, governor of the state of Mecklenburg-Western Pomerania, also has her sights set on Easter. She says that she is “hopeful, as we all are, that we can loosen the measures step-by-step, but I can’t promise as much. Nobody can at the moment.” Is it possible to politicize hope? Yes, Schwesig says, because “you can only fight and persevere if you have hope.”
Bavaria, for its part, is taking full advantage of the authorities it is afforded by Germany’s federal system and leaning on the expertise of its own administration. The state was hit by the pandemic early on, with Governor Markus Söder and his cabinet having to address cases as early as January. Since then, he has been posing as a man of action, frequently emphasizing that mathematics was a primary focus of his education. Each time new measures have been considered – school closures, the declaration of emergency, limitations on free movement – Bavaria has consistently been the first state to adopt them. In justifying his moves, Söder has consistently pointed to the recommendations issued by the Robert Koch Institute, which has become something of a shadow government in Germany these days.
But the state governors are not acting on their own. State and federal leaders are constantly taking part in conference calls about the situation. Thuringia Governor Bodo Ramelow, who is working from his lakeside vacation home these days, said he participated in eight conference calls last Sunday alone, two of them with members of his state cabinet and one with the Chancellery in Berlin. Ramelow is also listening to the advice of hospital hygienist Klaus-Dieter Zastrow. But, Ramelow says, not every expert recommendation is feasible. Ramelow says that Zastrow, for example, recommended that all people should be wearing masks. That, though, is something of a non-starter, the Thuringia governor says. “There aren’t even enough masks for hospital personnel.”
A look at the daily situation report from the Thuringian crisis team illustrates the dilemma. On Tuesday, the report noted that first-aid and emergency medical care was within days of collapse. There was a lack of protective equipment, the report noted, adding that in one municipality, the situation was particularly dire.
But Ramelow had a bit of luck in an unfortunate situation. In the middle of last week, 100 tons of face masks from Russia arrived at the airport in Erfurt. There were some difficulties with customs because the masks lacked the CE marking that the EU requires for certain products. So, Ramelow personally drove to the custom’s office and the cargo finally got released. The whole world, it seems, is improvising these days.
‘We’re at the Beginning of the Wave’
This is also true in Baden-Württemberg, where Stefan Brockmann is something akin to the state’s chief epidemiologist as the head of the Department of Health Protection and Epidemiology in the State Health Office in Stuttgart. Brockmann says there were more than 8,000 infected and 76 deaths in Baden-Württemberg as of Thursday. “We’re still at the very beginning of the wave,” he says.
At the earliest, we’ll see this weekend whether the state government’s measures have been successful, he says. “If we’ve managed to slow the infection curve by isolating ourselves, that would be a partial success.” He says state officials will have to keep adjusting their measures based on the data. He adds that there needs to be a controlled rise and fall in infections in order to immunize the population and flatten the curve. Brockmann says he doesn’t have the impression that politicians have grasped this. He says there’s an erroneous notion out there that you can just sit the virus out like some passing storm.
The world is heading into uncharted territory, and the visilibity is poor. Many have already given up hope that Germany will look the same after the virus as it did before. Pandemics are merciless in exposing weaknesses that often lay dormant and unnoticed in everyday life. The coronavirus has unleashed a perfect storm, because the reaction to the epidemic is also creating a crisis.
The world has come to a standstill and the images it is producing are a horror for the business world, for big and small companies alike. From one day to the next, airlines and hotel and restaurant chains began to fight for their very survival. The World Tourism Organization warned this week that 75 million jobs in that industry alone could be threatened. Car factories lie idle, supply chains have broken down in the textiles industry, taxi drivers have been hit as have waiters, hairdressers and corner store owners. Soon, entire economies will be deeper in debt than they’ve ever been. Who’s going to keep an overview of everything that goes on in this storm? And how?
Even in the best of times, Philipp Steinberg has one of the toughest jobs at the German Economics Ministry. He’s tasked with forecasting the future. The ministry’s chief economist is responsible for forecasting how Germany’s gross domestic product will grow. He gets help from some of the smartest economic scientists in the country, the German Council of Economic Experts, who provide him with data and analysis.
Before the coronavirus hit, he had been preparing his next forecast for April — and the numbers had actually looked really good. Steinberg expected a slight upswing. But now, the experts no longer speak in terms of figures. Our economic future is now being described in the form of three letters — V, U and L — each of which represents a different scenario.
The letters refer to the shape of curves in a coordinate system, a mathematical picture of economic development. An L would be a disaster: a steep fall and a long and drawn-out depression. A U would also mean poor prospects. The turnaround at the lower end of the letter can be translated as a long, painful reversal of the trend before the economy starts to pick up again.
It’s also possible the best-case scenario will occur — the V. It entails a steep plunge followed by an immediate upswing. Members of the Council of Economic Experts have informed Steinberg that they consider this to be the most likely scenario. But faith in that theory isn’t universal. Indeed, one saying seems to ring true: Ask three economists a question and you’ll get four answers.
Economy Could Shrink by 5 to 20 Percent
At the moment, the assessments are fluctuating even more wildly than normal. The Council of Economic Experts that formally advises the government is forecasting 5 percent negative GDP growth. Meanwhile, the Kiel Institute for the World Economy (IfW) is estimating 9 percent negative growth. The Ifo Institute in Munich is warning that GDP could collapse by as much as 20 percent. That would be tantamount to an economic meltdown, comparable to the crises that Eastern and Central Europe experienced after the collapse of the Soviet Union.
Ifo is calculating that the shutdown of industry, trade and services will cost 40 to 50 billion euros for each week it continues. Will these costs rise further if the crisis persists? Or will they at some point soar exponentially through the roof like the number of coronavirus infections? And is it possible that the economy could reach a tipping point where it becomes so paralyzed that it’s no longer possible to get it moving again? And what does it mean when the chief buyers from 5,000 European companies announce, as they did on Tuesday in a monthly survey, that they are expecting the biggest economic crash in the index’s history?
Steinberg and his staff are also being presented with other theories, including one that could be described as “habituation.” It entails companies learning to live with the shutdown. Car companies could organize manufacturing in ways that would keep workers at a sufficient distance from each other. Supply chains could also be organized despite all the hindrances. But who really believes that?
Anything Beyond April Would Be Severe
At the Economics Ministry, officials only have one ear to the cacophony of experts right now. The emergency aid and loan programs were necessary, even if it’s still not clear whether the economy will shrink by 5 or 15 percent. But does this really mean that the government has been making decisions in the dark? “Not in the dark,” says Economics Minister Altmaier. “The chancellor would say: We have to make an open decision.”
Officials at the ministry assume the economy would survive the closures to a certain extent if they were eased again at the end of April. Anything that goes beyond April, though, would be severe. Most importantly, it would be incalculable, because economists’ models aren’t designed for scenarios that long. “We would have to know how far the virus has spread among the populace,” Altmaier says. “One would also have to have this information regionally, in order to then lift the initial restrictions again in a targeted manner.”
Officials in the Finance Ministry have already evaluated everything they could find on the economics of a shutdown, i.e. an unexpected event that forces parts of the economy to be temporarily halted. If the crisis lasts longer than a few weeks, the results are very sobering. If larger parts of the economy have to be shut down for two or three months, many companies will no longer be able to cope with the losses. At that point, the government would have to pay part of the operating costs in order to save as many businesses from bankruptcy as possible. Otherwise it wouldn’t be possible to kickstart the economy again once the pandemic is over.
Finance Minister Olaf Scholz and his staff have calculated that if the shutdown results in a 20 percent drop in German economic output over three months, GDP would fall by around 5 percent for the year. If the government were to offset two-thirds of that sum, it would come with a price tag of 125 billion euros. To err on the side of caution, the special budget Finance Minister Olaf Scholz presented this week assumes GDP will shrink by 6 percent. This pushed up costs of financing the bailout to 156 billion euros.
It may sound like a massive amount of money, but it’s actually a manageable sum for a major economy like Germany’s. During the course of the financial crisis, the German government in 2009 spent more than 200 billion euros in order to cushion the blow of the global recession. The national debt at the time rose dramatically from 65 percent to 82 percent of GDP. It was a tremendous burden, but it ultimately proved bearable. Seven years later, the German government had paid off the debt.
Whether it can succeed this time hinges on a number of questions for which no one has any reliable answers right now. Is the damage that has been caused by the coronavirus greater than assumed because the pandemic has interrupted more deliveries and transports than previously thought? Will the economic shutdown, which was designed to prevent hospitals from being overwhelmed, have to be repeated, perhaps even several times? And what happens if the production outages lead to a financial and banking crisis that pulls eurozone countries like Italy and Spain into the abyss? Would Germany then have to be liable for the monetary union?
It’s Tuesday, and the man who should have the answers to questions like these is standing on a shopping street in Berlin’s Prenzlauer Berg neighborhood. It’s early evening, and it’s the first time Wolfgang Schmidt hasn’t been in his office until midnight. He’s instead spending a few hours with his family. A trendy, well-situated neighborhood that is usually teeming with life is just as dead as the rest of the country. Businesses are closed and the streets are empty.
‘The Crisis Will Change the Country’
Schmidt is a state secretary in the Finance Ministry and has been Olaf Scholz’s closest confidant for years. He says he’s hopeful that a country that has been shut down can soon start moving again, but he’s not sure. There’s only one thing he’s certain about: “This crisis will change the country.” Schmidt experienced the steps taken during a number of major events in recent years as Scholz’s right-hand man. He was there during the 2009 financial crisis, when then-Social Minister Scholz suddenly had to take charge of hundreds of thousands of workers who had been sent into the short-time work program, a government subsidy that picks up labor costs for workers so that their employers don’t lay them off. And during the refugee crisis in 2015, when Scholz, as mayor of the city-state of Hamburg, represented the interests of the states governed by leaders in his Social Democratic Party.
Now, he’s one of the top officials in Scholz’s ministry and also one of the government’s most important crisis managers. He’s steering the work on the billions of euros in state aid his boss announced earlier this week. He also maintains close contact with Chancellery chief Helge Braun, who is coordinating Chancellor Angela Merkel’s crisis program together with the state governors.
Schmidt has experienced some hectic phases in the government, but the coronavirus presents an entirely new dimension of crisis. He says there are “countless fires” to be put out, because “many industries are affected at the same time.” On top of that, he says, Berlin “always needs to be thinking about Europe” as a whole. Schmidt rejects accusations that the government underestimated the virus. He says the real problem is a different one. “The pandemic is developing exponentially, but we all think in linear terms.”
The German government began preparing its first bailout package for businesses at the beginning of March. To compensate for possible corona-related losses, affected companies were provided with easier access to the government’s short-time work program and they could also apply for large-scale loan assistance. There had been talk of a large package, but a few days later it was clear that the hastily compiled aid measures were at best a start.
Schmidt then invited a group of prominent economists to the ministry, to discuss the quickly escalating crisis, including Clemens Fuest, Gabriel Felbermayr and Marcel Fratzscher. The group quickly concluded that the measures taken by the government were a step in the right direction, but they didn’t go nearly far enough. The planned liquidity support also may “prove to be insufficient,” a paper by the professors stated. They wrote that the measures would need to be supplemented with tax cuts and, as a last resort, a rescue fund for companies. Shortly afterward, Merkel and Germany’s 16 state governors made the decision to send the country into quarantine. At that point, it also became clear to the experts in Schmidt’s ministry that the government had to increase the size of its bailout package again and that it needed to be a lot bigger. Now, small businesses and self-employed people were to receive direct grants and not just loans.
The government is also setting up a fund that will enable it to buy shares in companies struck by the coronavirus so they don’t go out of business. It has also cleared the way for people with marginal employment and freelancers to obtain welfare benefits without a major review of their assets. Essentially, in one fell swoop, the German government has introduced an unconditional basic income, at least for the time being.
A 1.8-Trillion-Euro Bailout Package
Another thought also guided the government: To reassure the people and the financial markets, the program needed to have the necessary impact. “During the euro crisis, we experienced what it was like as a government to be constantly playing catch-up,” says Schmidt. The federal government has now agreed on a package comprised of loans and guarantees with a total value of up to 1.8 trillion euros.
There has never been a program like this in Germany’s history. The state has essentially transferred the entire economy into the intensive care unit. In thousands of companies, a portion of wages will now be paid by the government. Industries like tourism and aviation will be kept afloat with public loans. And in companies that have been worst hit, the government now has the possibility of taking stakes in order to keep them from going under. Now, the question is whether these measures go far enough and for how long the economy — and the government, for that matter — can endure. Weeks? Months?
Scholz’s relief program will determine how the country looks back on the corona crisis. Did the state provide a good, fair and generous response? Was the 1.8 trillion well invested or was it money thrown out the window? Did small businesses truly benefit from the bailout? Macroeconomists have distilled the crisis and the countermeasures into curves and models. Talk is of trillions of euros — an intangible sum of money. But did the number-crunching prevent what would surely otherwise be very tangible existential crises for millions of people?
Julian Müller will one day be able to attest to whether it worked or whether it failed. Müller, the CEO of the eBuch Cooperative, says his company can’t survive a shutdown lasting longer than “four to six weeks.” He also makes it sound as if he can’t really believe that himself. But his cash reserves are depleting by the day. Since Wednesday of last week, he says he has had a shortfall in the low millions.
Müller’s Heidelberg-based company has 25 employees. It supplies 800 independent booksellers across all of Germany. He and two partners also operate a few bookstores themselves. Müller himself is a bookworm. Since he started the company 20 years ago, it has grown organically. “Three weeks ago, I couldn’t even have imagined that we would ever have to be fighting to keep the company alive,” Müller says. To the contrary: eBuch had been planning a party with 800 guests for its 20th anniversary, which was scheduled to be held around the time of the company’s annual meeting in May.
The company first got hit at the beginning of March with the cancellation of the Leipzig Book Fair, a major event in Germany for publishers and booksellers. His company had already booked a stand, it had brochures printed and another company had been contracted to build its stand at the event. The fair’s cancellation has been a painful blow for the entire book industry, but at that point things weren’t a complete disaster yet. Then the crisis worsened dramatically when, a week ago Monday, the government moved to close most stores. That was followed a short time later by the chancellor’s plea for everyone to stay at home as much as possible.
Since that black Wednesday 10 days ago, the hundreds of bookstores the cooperative supplies have seen 95 percent of their revenues collapse. At eBuch’s central warehouse in Bad Hersfeld, 1.5 million books are now piled up, including new spring releases. A chain reaction is starting: Bookstores whose revenues have plummeted are asking eBuch for payment deferrals. Müller says the company is trying to help where it can, but that he, too, is having to pay bills to publishers for books and goods sold in the run-up to Christmas.
He’s trying to negotiate his own payment deferrals. Meanwhile, the crisis for booksellers has also become one for authors. Many earn a decent part of their living from readings they do in bookstores, theaters and other venues. That has all vanished now.
Müller’s company held its first crisis meeting with its core team on Sunday two weeks ago. “The situation was surreal,” he says. Overnight, a healthy company was suddenly having to meet to arrange applications for short-time work aid for employees and government relief for the company itself. Now, there were existential worries, unforeseeable ones over which no one had any power. It was a “massive shock” for everyone, says Müller.
For the time being, Müller and a co-founder have taken out mortgages on private real estate and have rushed to complete their annual financial statements to be able to apply for the emergency loans provided by the state-owned KfW investment bank. They are also applying for corona crisis financial aid from the state government.
A ‘Completely Haywire Year’
But then, after speaking to the company’s bank and looking at the loan applications, Müller learned about the conditions on the KfW loans on Tuesday: 2 percent interest for a 5-year term. “That’s a joke,” he says. “Even in good financial years, that would cut deep into the core of our business.” That’s even truer of a “completely haywire year” like the current one, which he “expects to be a fiasco, a huge loss.” He adds, “The longer the mandatory lockdown lasts, every business owner will have to ask themself how high a price they’re willing to pay to merely survive and at what point do they just give up.”
Rent is due on April 1. He says he registered most of his people at the beginning of the month for short-time work, including employees who have been there from the very beginning. Müller says said he could sense the “concern and fear” among them, but also the willingness to go along with it to help save the company, even though they will be losing a third of their salaries. He says he’s still “full of energy.” His only hope is that this “state of suspense without any firm grasp” will end soon so that his company can start the work of patching itself up.
Until that point, he, like the rest of the world, will be navigating uncharted territory.
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