#ZEWlive on Rebooting the Economy in Baden-Württemberg
While the citizens of Baden-Württemberg continue to deal with the coronavirus pandemic, the state as a business hub must grapple with the economic challenges posed by it. Many employees are still working in short-time work schemes, and solo self-employed workers fear that they go out of business. Supply chains have been disrupted, while the automotive industry and its suppliers are suffering from a collapse in both domestic and export demand. For ZEW Mannheim’s online event focussing on Baden-Württemberg’s path towards economic recovery from the coronavirus, Baden-Württemberg Minister of Economic Affairs Dr. Nicole Hoffmeister-Kraut and ZEW President Professor Achim Wambach discussed which economic policy measures the state could adopt in order to overcome the crisis. This is the third time the series “First-Hand Information on Economic Policy”, moderated by journalist Elif Şenel, was held in digital format for #ZEWlive.
To start things off, ZEW President Achim Wambach provided an overview of the current economic situation. “At the peak of the financial crisis in 2009, the number of short-time workers in Germany was 1.4 million. Now, it is already well over seven million. Unemployment has also risen, but it’s still below the level from three years ago,” said President Wambach. All levels of government, from Europe to the federal state itself, have launched support programmes. Current forecasts predict that the economy will not recover until 2021 at the earliest. “The question is, when we can return to normal,” President Wambach said. “The federal government has suspended the debt brake for 2020, and there is a chance they will do the same for 2021. The debt ratio is thus expected to grow to 77 per cent of the gross domestic product (GDP). It’s a lot, but it’s doable, especially since the interest rates on German government debt are still negative.”
Federal and state aid measures complementing each other well
“Because of the coronavirus pandemic, we will probably have to deal with the most severe recession in the history of the Federal Republic of Germany,” stated Minister Nicole Hoffmeister-Kraut. “Since the beginning of the lockdown, securing liquidity has been the top priority for preventing a large-scale wave of insolvencies among Baden-Württemberg companies.” The core sectors of automotive and mechanical engineering, in particular, have had a difficult year, and the coronavirus crisis has further exacerbated the situation. “We have already initiated numerous aid measures, especially for our small and medium-sized companies, and are in the process of implementing further support programmes,” Minister Hoffmeister-Kraut continued. With the emergency aid it provides, Baden-Württemberg is ahead of the federal government in supporting companies at an early stage.
The measures taken by the state and the federal government are complementing each other very well, emphasised President Wambach. “In contrast to the financial crisis of 2009, it’s not only banks and large companies affected this time, but also small businesses at the municipal level. The federal government can’t manage all of that alone; that’s what we have the federal states for.” With its high industrial share, Baden-Württemberg more or less embodies a miniature version of the German economy: “If we can find good solutions here in our state, then the same will be true for the whole of Germany.” The programmes still need to be adjusted on both state and federal level, of course, but they are promising very good returns. “We’ll still see more insolvencies,” predicts President Wambach. “Unemployment will also rise, but that doesn’t mean that the current programmes aren’t working.”
Innovations leading the way out of the crisis
Minister Hoffmeister-Kraut also added that “in addition to the aid measures, we must now focus more on how we can boost the economy while preparing Baden-Württemberg for the future. Innovation will be the key to our state’s resilience. Above all, we need strong incentives for future investments in areas such as batteries, hydrogen economy, quantum technology, and artificial intelligence.” To that end, the state’s Ministry of Economic Affairs wants to have experimental rooms put in place, providing small and medium-sized companies with the necessary conditions for innovation. A centre for autonomous driving is also being planned, and the charging infrastructure must be further expanded as well. “The federal government presented its 130 billion-euro aid package. We will supplement and strengthen this package through sensible state measures,” Minister Hoffmeister-Kraut announced.
The audience took part in the discussion via chat. One question concerned how Baden-Württemberg could use its potential in order to get out of the crisis. President Wambach emphasised the importance of innovation and digitalisation: “The innovation rate in small and medium-sized companies has declined in recent years. Companies didn’t have time to do research because they had orders to fulfil.” Yet currently the economy is in crisis and future orders have collapsed, “so now is the time to ask: What will happen in the next ten years?” Companies can do this by taking advantage of the opportunities the aid programmes offer them. At the same time, President Wambach reminded the audience that “for the most part, companies are active on the world market. Baden-Württemberg must provide them with the right infrastructure so that it’s attractive for them to carry out research here.” Minister Hoffmeister-Kraut agreed and noted that the state provides an attractive research environment. However, politicians must develop this aspect further so that more companies are prepared to invest, creating more jobs in Baden-Württemberg.