The economist and historian published two years ago Adam Tooze “Crashed” is a much-noticed analysis of the consequences of the financial crisis in 2008. After studying in Cambridge and Berlin, the Briton stayed close to Germany and was a member of a historical commission that examined the role of the then Ministry of Finance in the Nazi regime. He now teaches at Columbia University in New York.
Mr. Tooze, Germany is still a model student in this crisis, but how much does the corona shock attack the basis of our prosperity?
ADAM TOOZE: The unique thing about what we experience is simultaneity. The simultaneous slump in consumption, investment and labor. The figures from the International Labor Organization (ILO) alone: 2.7 billion workers worldwide were affected by the lockdown. At the same time! This is crazy. A disaster is waiting for us in the French, Spanish and Italian labor markets – probably also in Germany. We don’t know how to recover from such a shock.
China is said to do it.
I follow the news from China very, very much because you can see how difficult it is there. The last numbers indicate that the recovery is rather difficult. This time we cannot expect China to start a gigantic economic stimulus program again, as it did in 2008, and to virtually pull the rest of the world out of the recession.
So can we not rely on the current forecasts?
We have talked a lot about radical insecurity in recent years. But if we’re honest, we had no idea what that really means. It only takes a second wave of infection, or a setback in medical development – and we would then be faced with very tough questions.
What can, what do we have to do about it?
Germany has already made a lot of progress, but it would be good if Europe also had an open wallet and could say: Okay, that was the first round of the crisis, but if more money is needed, we will also bring more.
“The state as employer of last resort, as payer of last resort”
What Europeans have decided so far is not enough?
The package that is now on the table is a bad compromise for the first round, which came about with groans and croaks, but will simply not be enough. This crisis goes on for several rounds. We know that after the 2008 crisis it was a big mistake that there was only an economic stimulus package in the first round of the crisis. 2010 was then closed. Now it is all the more important that we stimulate the expectations of companies and people. Because which entrepreneur would invest under these conditions, which consumer would go shopping?
But isn’t it clear that the German economic model – we supply the world – is lost?
This is certainly a huge challenge for Germany. But take Volkswagen, they are producing in China again: research and development in Germany, but production is global. This creates flexibility and you can switch and act regionally. But this model also depends on the state or the domestic central bank, i.e. the ECB at VW, helping. Ultimately, it is a game with the idea that basically, when everything is switched off, the state gets in as the last resort employer, the last resort payer. And it may be that the model of the future looks like this.
This world sounds pretty ghostly: States that sell their debts, i.e. their bonds, to the central bank, a similar game among companies – that is already becoming apparent. How does an economy work whose financing depends only on the state and the central bank?
Yeah, you’re not in Kansas anymore! This is what people here in America say: welcome to reality. But seriously. It is not so bad. That has been the reality of capitalism since the 1980s. The Fed has been supporting equity markets since Greenspan became Chairman of the American Central Bank in the late 1980s. And I don’t mean that polemically, that’s a realistic description. The big growth engine in the world is state capitalism in China, where debt has been piling up since the late 1990s.