Chief Economists: Now overcome the shut-down of the economies and limit negative second-round effects

In their latest position paper the Chief Economists of the Savings Banks Finance Group welcome the measures announced on 13 March 2020. The German government has created necessary conditions to support companies effectively in this challenging time. “In addition, it is now a matter of finding sector-specific solutions to help cushion companies in the period of shut-down. Reliefs for banks must also follow. In addition, the closure of stock exchanges must be taken into consideration”, says Uwe Burkert, Chief Economist of Landesbank Baden-Württemberg (LBBW).

To limit the adverse economic effects as far as possible, the package of measures of the Federal Government must be implemented as quickly as possible. In the case of indemnifications, KfW should take over the risk assessments of the house banks. Furthermore, as an immediate measure, KfW should grant suspensions of repayments for the next instalments at the request of the principal bank. Additionally, if there is a risk of insolvency, the loans could also be converted into a grant. If these measures are not sufficient, targeted, strictly limited government grants could also be considered.

It is becoming increasingly clear that Germany will initially face strong recessionary tendencies in 2020. Further downward spirals must be broken as best they can. The spring of 2020 must therefore first be used in economic policy to cushion a deep economic slump. At the same time, the foundations for a possible upswing must be laid. Fiscal policies must now deliver their "whatever it takes". Then the course will also be set for limiting negative second-round effects. Germany and Europe have developed the first essential activities in this regard. However, the task now is to support citizens and companies as well as banks and savings banks even more strongly with measures that will help them overcome this dramatic crisis phase.

“Locally anchored institutions have a crucial stabilising function in times of crisis. This is particularly true of locally rooted banks and savings banks, which, with their infrastructure, contact management and continuous lending, help small and medium-sized enterprises to overcome liquidity bottlenecks, stabilise the present and invest in the future”, says Dr. Reinhold Rickes, Head of Economics at Deutscher Sparkassen- und Giroverband (German Savings Banks Association, DSGV). For this to succeed, everything possible should be done in regulatory and macroprudential terms to maintain the liquidity and credit supply.

The Chief Economists of the Savings Banks Finance Group regularly publish positions on current monetary and economic policy issues. They represent a kind of "think tank" within the Savings Banks Finance Group.