Searchig for the second German Miracle

Ezequiel Daray

Anchorman @dasligahaus Fox Sports correspondent in Germany.

While the world is torn between the horror of the deaths caused by the Corona virus and the scorched earth that it leaves in its way in various economic sectors, Germany has, at this point, an “unwanted advantage”: it has already recovered from two world wars, which it fought on its territory.

Although few people are still alive who have gone through the Second War, there are many more who have lived through the 10 years of recovery that followed, forgetting the British newspaper The Times baptized it as “the German miracle”.

The panorama was much worse than the one that the world can face now if we consider that almost all the factories had been destroyed, that a large part of the male population between 18 and 35 years old had disappeared, that 20% of homes have been lost and that a large part of the country had fallen under the clutches of Russian communism.

A group of liberal economists, influenced by Hayek’s ideas, decided to make a radical turn towards an open economy, removing regulations, price controls and creating the German mark in 1948, as we saw in my previous column. Thus was born the “Wirtschaftswunder” (the economic miracle), which transformed Germany into a power in the mid-1950s, even surpassing a Great Britain, which had won the war and controlled, along with the rest of the Allies, its territory.

Ludwig Erhard was the economist who led this movement and belonged to the same party as the current German Chancellor Angela Merkel. Precisely, the current leader of the country, who was born in Hamburg, but grew up in the former communist Germany, publicly declared her “love for freedom”.

In fact, her strategy to deal with what she declared (in her only national network in 15 years of government) as the “greatest challenge of the German people since World War II”, has some of the roots of the policy she faced , at that time, Ludwig Erhard.

Having had the “advantage” of observing, a few weeks before, what was happening in Italy, in Germany a quarantine was also decreed, as it was in almost the whole of the world. But this one was never very restrictive of individual liberties. Merkel aimed to give a clear message to the population, seeking more awareness and personal care, than patrolling the streets preventing people from leaving. From the first day of quarantine we were able to go for a walk or run through the forest, without giving explanations, respecting social distancing.

From the economic point of view, in the previous column I spoke to you about the law that prohibits the State from having a deficit. It is the so-called “Schuldenbremse” (debt curb), which allowed debt to be reduced from 90% to 60% of gross product. This rule, written in the constitution, establishes exceptions for cases such as the current one, and so it will not take effect this year.

From the day the quarantine was announced, an assistance scheme was established for the private sector, to help it resist this forced confinement. All companies and freelancers in the country received a subsidy, based on the number of employees in each sector. In a company in trouble, for example, workers work short hours, receiving 80% of their salary. A total of 20 percentage points of this is paid by the State.

All the self-employed in problems were exempted from paying the income taxes, and special aids were established for the most disadvantaged sectors, such as gastronomy and hotels (hotels are open only for individual work trips). A company like Lufthansa, for example, will receive a contribution of 9 billion euros, which will translate into a state participation in the company’s share percentage.

Thus, a budget that was going to lead to a surplus of more than 1 point of the product and reduce indebtedness to less than 60% in 2020, was practically doubled, to help the private sector. This was Merkel’s “little Marshall plan”.

Precisely, the private sector was the great ally of the State in the fight against the virus. More than 100 private laboratories are desperately searching for the vaccine, while all auto companies helped make respirators and medical supplies.

A country that invests 20% of the gross product in health (30% more than Spain) and 90 billion euros per year in research and development (double that of France), has the largest number of intensive care beds per inhabitant on the continent. This year, inclusive, the number of these increased from 25 to 40 thousand. At the same time, and foreseeing that it would be the only way to relax the quarantine, large amounts of reagents were imported for testing, from countries such as South Korea. The economic liberalization plan, which is already in full swing, is based on the information generated by these tests. Even, of the more than 600 thousand weekly tests that can be carried out, it is reported that more than 100,000 remain unused.

Another example of the contribution of the private sector is the development that companies such as Telekom and SAP carry out to create an application that reports cases of contagion in the surroundings of everyone who has it on their cell phone, and who already have the antibodies for having been exposed to the virus. Thanks to these initiatives, today Germany has all its stores, premises of up to 800 square meters and life is similar to that of the beginning of March, with social distancing and masks.

Thus, Angela Merkel, a doctor of physics who sits down and explains her plan with a clarity that leaves opponents without arguments, has managed to have 75% approval of the population, regarding the management of this crisis.

As I said, it is not the first time that this society goes through something like this. The destruction left by the wars, followed by inflation, unemployment and shortages caused by Nazi populism, were lessons that the Germans learned by sweating blood.

Those lessons gave Merkel and the Minister-Presidents of the 16 federal states (the equivalent of the provinces in Argentina) the road map. A state that saved for a long time, quickly went out to help the private sector, spending part of those savings, while fighting the pandemic. But, at the same time, it is ready to go back and embrace the ideas and individual liberties that have made Germany great once, and that can take it off the rest once again, when the world becomes “normal” again. For example, the Bavarian Minister-President has already announced that all profit tax rates will be lowered (around 20%) as soon as the pandemic ends.

Will it work? Will it be enough? Not even Nostradamus would know. But that’s how the German miracle once worked and when something works, in this country, no one disputes it.