"Is the German economy at risk of becoming undead or resembling a zombie economy?"
In the latest episode of the Eyb & Wallwitz podcast, the potential consequences of a major insolvency wave in Germany are discussed. Johannes Mayr, the chief economist at Eyb & Wallwitz, expresses concern about this potential scenario.
Mayr's comments do not indicate a prediction of a major insolvency wave in Germany, but rather a call for caution. He suggests that the economic crisis has promoted creative destruction, with inefficient companies disappearing and innovative ones thriving. However, massive bridging aids and the suspension of insolvency application obligations during the crisis have delayed the cleanup of the corporate landscape, raising concerns about a potential wave of insolvencies.
Mayr questions the duration of the aid, citing increasing side effects. He implies a potential need for careful consideration in the distribution of aid loans, suggesting that they should be viewed with a mix of optimism and concern. Mayr also expresses concern about governments' difficulty in distinguishing pandemic-related issues from pre-existing structural problems in companies.
The text does not provide a definitive answer on whether a major insolvency wave is imminent in Germany. The question of whether the economy has been zombified, with struggling companies being artificially kept alive, remains unanswered.
However, it is clear that the immediate consequence of the aid is an increase in the debt level, especially in the public sector. Corporate debt has also continued to rise due to the crisis. While these measures were important for the stabilization of the economy in the short term, Mayr raises concerns about their long-term impacts on the efficiency and sustainability of the economy.
Research shows that the major lasting effects of economic support measures during crises can include lost total factor productivity, depletion of capital stock due to lower investment, and reduced labor force participation. This leads to a permanent output gap and lower economic efficiency.
While social protection and economic support are essential during crises, they must be designed to balance short-term relief with fiscal sustainability to avoid undermining future resilience. Prolonged high deficits or debt can limit governments' ability to respond to future shocks and may impose constraints on productive investment.
Some studies suggest that certain protective measures like trade restrictions during shocks can mitigate initial downturns, but prolonged or excessive restrictions and economic lockdowns can exacerbate economic weaknesses and reduce growth potential.
Overall, economic support measures during crises are crucial for immediate stability but can produce distortions or long-lasting damage if they lead to underinvestment, fiscal imbalances, reduced labor participation, or if restrictions on economic activity persist too long. Policymakers must design responses that balance urgent relief with preserving future economic efficiency and sustainability.
The podcast is available for listening now, providing a resource for understanding the potential consequences of a major insolvency wave in Germany. It serves as a reminder that while immediate action is necessary, careful consideration must also be given to the long-term impacts of these measures.
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- In the discussion on the potential consequences of a major insolvency wave in Germany, Mayr calls for careful consideration in the distribution of aid loans, suggesting that economic policy must strive to balance short-term relief with fiscal sustainability to avoid undermining future resilience.
- The podcast, discussing the potential consequences of a major insolvency wave in Germany, highlights the importance of understanding the long-term impacts of economic support measures on the efficiency and sustainability of the economy, particularly in terms of underinvestment, fiscal imbalances, reduced labor participation, and persisting economic restrictions.
