Interview with economist Michael Burda: ‘Germany has to do its part’

The German government on Monday night agreed to a €50-billion stimulus package, but will it be enough to bolster Europe’s largest economy? The Local spoke with Prof. Michael Burda, director of the Institute for Economic Theory at Berlin’s Humboldt University.

Interview with economist Michael Burda: 'Germany has to do its part'
Will the stimulus ignite growth or simply burn taxpayer cash? Photo: DPA

Germany has been widely criticised for dragging its feet in the wake of the global financial crisis. Is such criticism valid?

Germany is biggest economy in both the European Union and the eurozone, so if it isn’t doing what Europe is expected to do in response to the crisis, Germany will drag down that average. And that’s why a lot of people are paying attention to what Germany is doing. On the other hand, in Germany’s defence, this is an election year, and people still expect some sort of solid fiscal responsibility from their politicians. But the priority should be to pass some sort of demand stimulus. If they don’t do it now it will be too late. The same effort later on might not have the same effect.

But Germans also didn’t really believe they were responsible for all of this. Most economists are convinced that the United States was at the root of the crisis, but the rest of the world bought into it and it’s a globalised problem now – it’s become a real economic problem, not just a financial problem like last year. So even if Germany thinks it was the fault of the US or UK because of lax regulation of financial markets, it’s now everyone’s problem. It’s spilled over into the things Germany cares about – machinery and high-end cars.

How does the German response compare to other big economies such as Britain, France and the United States?

There’s been a recognition lag here. It’s like you’re sitting on the beach and you see a tsunami coming. You still have 20 minutes to decide what to do. Then you really have to act decisively. Europe at least has had the benefit of seeing the tsunami hit the United States. But Germany is not a very Keynesian place. Tinkering with the (economy’s) motor is not what a lot of politicians here like to do. But this is a very serious situation. This is something we haven’t seen in decades. This is shock that will create a chain of events. Germany is not really used to doing this kind of stuff.

Is this perhaps the problem with Chancellor Angela Merkel’s grand coalition? The parties are pulling in different directions?

Having a grand coalition has all sorts of disadvantages but it also ensures everyone is onboard. No one is blocking. I was actually very encouraged by what happened last night. Every party wanted to put their little stamp on it so they could say they got something for their constituency. But that’s all secondary to what we need right now – which is a good jolt of demand to prop up the economy, because otherwise a lot of people are going to be losing jobs.

What’s your take on Berlin’s latest €50-billion stimulus package?

That’s not a whole lot if you look at the numbers – especially if you look at the US, which is pushing for a much bigger programme. If they go for $750 or $800 billion and get it through the Congress that’s a huge stimulus. That corresponds to the gravity of the situation as American experts see it right now. I do think there’s a difference here. The European real economy will be affected less. A lot of this is self-interest. Why should Germany do something for the United States right now? Within Europe you might have a real problem, however. If people think Germany is dragging its feet while France and Britain appear to be very much on the side of the United States that could push Germany to do more.

The bottom line on this package is going to be that it’s too modest right now. One can’t really afford to be a penny-pincher right now. All this concern about the deficit – I agree with the Maastricht criteria, but right now we’re in a situation where if we don’t save the European economy in the near term the euro area might eventually break up. These are drastic scenarios that people don’t want to talk about.

Germany is the world’s biggest exporter. How much is really in other people’s hands? If other economies are underperforming will they still by fancy German cars and machinery?

Europe is still a mosaic – it’s not like the US. When (Barack) Obama becomes president he can just say the federal highway system will be refurbished. He can just do it. The lag between decision and implementation is short. But in Europe, sovereign states have to decide. And European economies are quite open these days. Germany exports and imports around 40 to 50 percent of its gross domestic product. It’s like California – which has an even higher export rate than Germany’s. Think of (Governor Arnold) Schwarzenegger being asked to provide fiscal stimulus for the entire country. That’s a bit much. But Germany has to do its part. Germany can’t be expected to pull everyone out of this problem, but if it doesn’t do its part it won’t work either. The expectation is now that Germany takes a leadership role and inspires the laggards to do something too. But the coordination problem is enormous in Europe.

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REVEALED: EU plans digital-only Schengen visa application process

Soon those non-EU nationals requested to have a Schengen visa to travel to European countries will no longer need to go to a consulate to submit the application and get a passport sticker, but will be able to apply online. 

REVEALED: EU plans digital-only Schengen visa application process

The European Commission has proposed to make the Schengen visa process completely digital.

The special visa, which allows to stay for tourism or business (but not work) in 26 European countries for up to 90 days in any 6-month period. 

Nationals of third countries such as South Africa, India, Pakistan and Sri Lanka need the Schengen Visa to visit Europe, but they are not needed for other non-EU nationals such as Britons or Americans. You can see the full list of countries who need a Schengen visa here.

The proposal will have to be approved by the European Parliament and Council, but is in line with an agreed strategy that EU governments are keen to accelerate in the aftermath of the pandemic. 

Once agreed, the system will be used by the countries that are part of the border-free Schengen area. These include EU countries, excluding Ireland (which opted out), and Bulgaria, Romania, Croatia and Cyprus (which do not issue Schengen visas). Iceland, Norway, Lichtenstein and Switzerland, which are not EU members but have signed the Schengen Convention, will be part of the new system too.

Paper-based processes required applicants to travel to consulates to submit the application and collect their passports with the visa, a procedure that “proved problematic during the COVID-19 pandemic,” the Commission said.

Some EU countries have already started to switch to digital systems but not all accept online payments for the visa fees. 

When the new system will be in place, the Commission says, applicants will be able to check on the EU Visa Application platform whether they need a visa. If so, they will create an account, fill out the application form, upload the documents and pay. 

The platform will automatically determine which Schengen country will be responsible for the application and applicants will be able to check their status and receive notifications. Travellers will then be able to access the visa online, and if needed extend it too.

“Half of those coming to the EU with a Schengen visa consider the visa application burdensome, one-third have to travel long distance to ask for a visa. It is high time that the EU provides a quick, safe and web-based EU visa application platform for the citizens of the 102 third countries that require short term visa to travel to the EU,” said Commissioner for Home Affairs Ylva Johansson.

“With some member states already switching to digital, it is vital the Schengen area now moves forward as one,” said Commission Vice-President for Promoting our European Way of Life, Margaritis Schinas.

However, first-time applicants, people with biometric data that are no longer valid or with a new travel document, will still have to go to a consulate to apply.

Family members of citizens from the EU and the European Economic Area, as well as people who need assistance, will also be able to continue to apply on paper. 

The EU Visa Application platform will be used from third countries whose nationals must be in possession of a visa to enter the EU and is different from the ETIAS (European Travel Information Authorisation), which is currently under development.

The ETIAS will be used by non-EU nationals who are exempt from visas but who will need to apply for a travel authorisation prior to their trip. This will cost 7 euros and will be free for people below the age of 18 and above 70. 

Based on the discussion between the European Parliament and Council, the Commission could start developing the platform in 2024 and make it operational in 2026. EU countries will then have five years to phase out national portals and switch to the common online system.