Angela Merkel has become the spend, spend, spend chancellor | Larry Elliot | World news

Angela Merkel has become the spend, spend, spend chancellor | Larry Elliot | World news


And in one bound she was transformed. For Angela Merkel, the days of being lampooned as the archetypal Swabian housewife keeping tight control over the purse strings are over. Now, courtesy of a €130bn (£116bn) stimulus package, she is the spend, spend, spend chancellor.

Make no mistake, much of the past criticism of Germany’s frugal approach to government spending and budget deficits was justified. Saving some money for a rainy day is one thing but running surpluses worth 8% of national output was unnecessary and harmful to the global economy.

Nobody can accuse Europe’s biggest economy of stinting on this occasion. The package was bigger than expected and, at about 4% of GDP, doubles the size of Germany’s tax and spending stimulus since the start of the crisis.

Epidemics of infectious diseases behave in different ways but the 1918 influenza pandemic that killed more than 50 million people is regarded as a key example of a pandemic that occurred in multiple waves, with the latter more severe than the first. It has been replicated – albeit more mildly – in subsequent flu pandemics.

How and why multiple-wave outbreaks occur, and how subsequent waves of infection can be prevented, has become a staple of epidemiological modelling studies and pandemic preparation, which have looked at everything from social behaviour and health policy to vaccination and the buildup of community immunity, also known as herd immunity.

Is there evidence of coronavirus coming back in a second wave?

This is being watched very carefully. Without a vaccine, and with no widespread immunity to the new disease, one alarm is being sounded by the experience of Singapore, which has seen a sudden resurgence in infections despite being lauded for its early handling of the outbreak.

Although Singapore instituted a strong contact tracing system for its general population, the disease re-emerged in cramped dormitory accommodation used by thousands of foreign workers with inadequate hygiene facilities and shared canteens.

Singapore’s experience, although very specific, has demonstrated the ability of the disease to come back strongly in places where people are in close proximity and its ability to exploit any weakness in public health regimes set up to counter it.

What are experts worried about?

Conventional wisdom among scientists suggests second waves of resistant infections occur after the capacity for treatment and isolation becomes exhausted. In this case the concern is that the social and political consensus supporting lockdowns is being overtaken by public frustration and the urgent need to reopen economies.

The threat declines when susceptibility of the population to the disease falls below a certain threshold or when widespread vaccination becomes available.

In general terms the ratio of susceptible and immune individuals in a population at the end of one wave determines the potential magnitude of a subsequent wave. The worry right now is that with a vaccine still months away, and the real rate of infection only being guessed at, populations worldwide remain highly vulnerable to both resurgence and subsequent waves.

Peter Beaumont

Germany showed the rest of Europe what was needed to limit the spread of the virus: a decentralised testing programme; a manufacturing sector capable of producing medical equipment quickly; and a political system that prizes results over grandstanding. Now it is showing other countries how to do the recovery.

It is not just a question of money, important though that is. The package is a well-crafted mixture of a short-term spending boost, targeted support for those parts of the economy that need it and measures that will help lay the foundations for long-term sustainable growth.

There is a time limited cut in VAT lasting from July until the end of the year, which should persuade German consumers to spend some of the euros they have accumulated during lockdown. There is recognition of the pressure on families, with a payment of €300 per child, extra incentives to buy electric cars, and grants worth €25bn for small businesses in those sectors, such as hospitality, that will take longest to recover from lockdown restrictions.

All that will ensure Germany will be one of the first countries to get output back to its pre-crisis levels. Yet, the package also included €50bn for investment programmes, with a focus on making the transition to a greener economy.

All this is a bit of a contrast to the UK experience. So far, Rishi Sunak has administered large amounts of expensive sticking plaster to the economy but not much more. As he contemplates options for a summer mini-budget, the chancellor could do worse than to study what the Germans have come up with. A lot worse, in fact.



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