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Germany impoverishes, and demands blood, sweat and tears | Opinion

As Germany impoverishes, research institutes and the business press are calling on the government to speak out and call for blood, sweat and tears, as Winston Churchill did in his spirited and somber 1940 speech: “Blood, sweat, tears…why Scholz should speak as the Prime Minister of the United Kingdom during the Second World War”, claims the economic newspaper Handelsblatt. and the legendary The mirror stresses that there is no alternative to tightening the ECB’s monetary policy, which will reduce its balance sheet and raise the reference interest rate even more, assuming the risk of further cooling the economy in a winter that the Germans will be cold. The rule of 19 degrees that requires public buildings not to exceed that temperature if you work sitting down (18 degrees if most move standing) pushes entities to recommend that their employees take blankets to work. Germany calls for modesty and austerity to prevent the energy crisis from turning into a debt crisis.

Learn from Churchill to join forces, that’s the idea. The more difficult everyday life gets and the higher energy prices rise, the greater the risk that the social consensus and EU support for Ukraine will break down. The mirror on the cover: “Explosion of prices, bankruptcy of companies, fear of social collapse. Hard years await Germany.” The weekly calls on Chancellor Olaf Scholz and Federal President Frank-Walter Steinmeier to act like Churchill and explain that stopping Putin will come at a price. The commentator Susanne Beyer criticizes that with the slogan of the Scholz Government, you’ll never walk alone (you will never Walk alone, Liverpool’s anthem), you can motivate a football club, but not a country. “With his address to the nation, Churchill succeeded in defending liberal democracy against Hitler. The words work. The German government has to expose the price.“

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During the pandemic, the German economy fell, but in 2021 it got back up and recovered what was lost. With the war another crisis has come, but the economic institutes predict that after the current fall, which will mean a recession of up to 1.5% in 2023, the economy will grow 2.3% in 2024. That is, there will not be a disaster such as that caused by the pandemic, with a recession of 4%, or by the financial crisis of 2008, of 6%.

The dilemma now is how this winter and next 2023 will be spent. High inflation, up to 11% at the beginning of next year, is reducing purchasing power and consumption. Companies are also suffering from the global downturn and supply problems. But rescue packages cannot compensate for all these losses. According to the IfW research institute, Germans will pay an additional 123 billion in 2022, and 136 billion in 2023, for their energy imports. And if power fails this winter, even less will be produced and the economy will suffer even more.

The EU has decided that there will be no colossal rescue packages like in the pandemic. Not because it underestimates the consequences of the energy crisis for consumers and companies, but because state aid should be allocated to what is essential so as not to push inflation even further. The question is whether the EU’s 27 finance ministers will hold out. The political pressure is enormous and Germany fears that populism will run amok. Governments can cushion the impact of the crisis by lowering taxes or capping energy prices, but they shouldn’t make it harder for the ECB to fight inflation. If demand soars, there is a risk of an increase in prices, especially when supply is limited by supply and production problems. Aid packages, yes, say the German think tanks, but aimed at those who have the least and encourage energy saving.

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The ECB also asks for blood, sweat and tears. Its adviser Isabel Schnabel announces that the banking entity will have to raise interest rates to guarantee the return of inflation to 2%. At this time it amounts to 9.1%, and it is not ruled out that it will rise further. In fact, according to a study presented by Schnabel, “a historically high percentage of eurozone companies expect price increases in the coming months.”

The ECB is risking its credibility, as the vice president, Luis de Guindos, has recognized. If the population and companies lose confidence, the situation becomes even more complicated. The ECB calculates that inflation will remain around 5.5% in 2023. Its forecast for 2025 exceeds 2%, so the entity will react with a restrictive monetary policy. Beginning in the first quarter of 2023, the council will reduce its balance sheet. It is the bet for the contractive quantitative tighteningthe monetary instrument to reduce the amount of liquidity and reverse quantitative stimulus programs.

Lagarde thought that inflation would resolve itself as soon as the supply and production problems caused by the pandemic were resolved. The German economy reproaches him for the fact that, although he did not know what was coming (the war), the current crisis was entered with such a high level of inflation. However, the eurozone is not the US, where the Fed has raised rates to 2.25%. While inflation there is due in part to strong demand, Europe is suffering from an economic supply crisis, caused above all by the shortage of oil and gas. The ECB cannot supply energy, nor can it buy the machines and cars that it does not sell to Russia. This makes credit more expensive at the cost of the risk of slowing down the economy. The think tank IfW speaks of a snowball threatening Germany. Companies begin to reduce their production due to prices or lack of components. First bankruptcies. The vicious circle has already been unleashed by which companies ask for higher prices for their products in the face of inflation prospects and, workers, better remuneration.

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The loss of well-being goes a long way. The rescue packages are insufficient and the costs should be paid by the rich, say between 51% and 60% of the population (Civey poll in September for Der Spiegel). The war impoverishes us, also the State, emphasizes Monika Schnitzer, from the economic council of wise men who advises the German government. It is time to speak clearly. These types of discourses are necessary to unite societies in extreme moments, she points out Handelsblatt. “I can offer nothing but blood, toil, tears and sweat,” Churchill declared in 1940, expressing his aims and doubts openly in order to obtain the support of the British people. The mirror believes that Europe needs a new strategy to get out of the current recession and that Germany must help. “Following Churchill’s motto: never waste a good crisis.”

lydia count is a German political and economic analyst

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