Covid measures, crucial decisions

The effects of a second lockdown could be even more disastrous than the pandemic itself
The effects of a second lockdown could be even more disastrous than the pandemic itself (source: GIS)

It appears that coronavirus infections in Europe are increasing again. The good news is that  death rates have decreased sharply. Nevertheless, governments in some countries might be tempted to implement a new lockdown. Part of the reason might be that after putting in place the first lockdown, they were rewarded with a boost in popularity. People accepted restrictions on personal freedom, regardless of whether they were set due to serious concern or overblown panic.

German federal government leaders, including Chancellor Angela Merkel, will discuss the rising number of infections with the leaders of the individual German states this week. Might they decide to implement a second lockdown?

Lars Feld, the head of the German Council of Economic Experts, which advises the federal government, strongly warned against such a measure. He said: “If there is an acceleration and the infections continue to spread, there is a threat of a second lockdown. That would be a catastrophe from an economic point of view. There is then the risk of a permanent slowdown in growth.”

Many companies that made it through the first lockdown might not survive a second
He emphasized that a second lockdown would interrupt the country’s economic recovery. Many companies that made it through the first lockdown might not survive a second.

Another lockdown could find widespread acceptance among the German public, but in hindsight could be seen as a decision based on political expediency and lack of courage rather than furthering the long-term good. The justification for the first lockdown was ostensibly to slow down the infection rate to keep from overloading the medical system.

In some European countries, mainly in those with decentralized health systems, such as Germany, Austria and Switzerland, there has been sufficient capacity to treat those infected. Sometimes hospitals even had to shorten shifts due to overcapacity. It appears that slowing the spread now does not have to be the most urgent goal.

Yet many experts also pointed out that only achieving herd immunity could solve the issue in the long term, since a vaccine would require months or years to be developed and approved – and anyway, a mutation could quickly make a vaccine obsolete.

European countries have taken different approaches. One of Germany’s strengths is its decentralization. Instead of closing borders or calling for national lockdowns and one-size-fits-all policies, local authorities could be able to take their own measures to effectively address the outbreak.

Such a move might serve to justify pouring even more money from Brussels and national governments into the economy
Other European governments are already considering what steps they should take next – and are watching Germany closely. A lockdown in Europe’s largest economy would have highly detrimental effects across the continent.

Such a move might also serve to justify pouring even more money from Brussels and national governments into the economy. Yet we must not forget the enormous downside of the recovery measures that were decided at the Brussels summit a few weeks ago. This money, as it is allocated by government agencies, risks the following:

  • supporting governments in their continued excessive spending on oversized administrations
  • keeping zombie businesses alive (a populist way to save jobs)
  • giving governments the tools for economic planning, through the emphasis on establishing a “green economy.” History has repeatedly proven that economic planning by governments inevitably leads to misallocations and enormous risks. The incentives created by competition and, in consequence, consumer behavior, are much better at achieving a sustainable economy
  • driving real estate and equity prices higher, therefore increasing asset inflation and further inflating the asset bubble. At the same time, it punishes savers and pension funds further through slashing interest rates

Government money rarely reaches successful new businesses.

The way European governments decide to address a potential second wave – and whether citizens accept it – could be crucial for the future of the continent. At stake is Europe’s continued prosperity on one hand, and on the other, upsetting the balance between bureaucratic power and personal freedom.

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