 All right, good afternoon. I'm pleased to welcome you to this IAA webinar and we're delighted to be joined today by Professor Lars Feld, Chairman of the German Council of Economic Experts who has been generous enough to take time off to talk to us. And you will talk to us. And then we'll go to questions and answers with the audience. You'll be able to join the discussion using the question Q&A function in Zoom, which you should see on your screen. And please feel free to send in your questions throughout the session. It helps if the questions are ready when Professor Feld is finished. And we'll come to them at the end. You can also join the discussion on Twitter using the handle at IIA. This session is on the record and it has been recorded. And I will now formally introduce Professor Feld, who has been chairman of the German Council of Economic Experts since the beginning of the year and as the current director of the Walter Oiken Institute at the University of Freiburg, where he lectures in economic and regulatory policy. Professor Feld is also a member of the Scientific Advisory Council, the Federal Ministry of Finance, the German National Academy of Natural Sciences, Leopoldina, and the Independent Advisory Board, the German Stability Council. As an advisor to the German Ministry of Finance, he played a crucial role in embedding the debt break in the German constitution. Over to you, Professor Feld. Thank you very much, Professor Fitzgerald. I'm very pleased to join you and very pleased to talk to you and give my presentation on the current state of the German and European economies and also highlight some of the challenges that we are currently facing. If you don't mind, I'm going to share my screen with you. And I hope this is working out fine. Yes, it looks like. I hope you can all see my slides now. Well, the title of this year's annual report of the German Council of Economic Experts is overcoming the coronavirus crisis together, strengthening resilience and growth. The title already signals that on the one side, we have short term challenges that we have to face and to overcome. And doing it together is meaning well, it only we only have a good chance to go through all these problems if we are cooperating. So within Germany, we have the difficulties of a federation where the federal government and state governments they have their own agendas and they have to come up together with joint solutions. But on the other hand, also at the European level, where particular solutions have been taken that go into that into that direction. So I should emphasize that the report is looking forward a bit further by asking what are the medium term and long term challenges and how how can we connect the short term and long term challenges to get out of the situation. More favorable. Now we actually have the problem that we mentioned before now it's moving. So this is the structure of the annual report. We have a usual economic forecast and I'm going to spend a few minutes highlighting what we are thinking the German economy and the European economies are going through. The second part is on stabilization policy in Germany so I will address the particular fiscal policy measures undertaken by the federal government and the states. And then I'm going to underline the requirements that we're going to have in Europe, taking the next generation EU and recovery and resilience fund in particular, but also other questions. I will not say much about the three then following chapters of the report that have the long term, the long term challenges in mind I only make the one or the other remark regarding these three, which are technological progress in the form of digitalization. And climate change and climate policy that is necessary to cope with climate change. And third, the demographic change which is going into the much further future it's a really long term challenge but the challenge already starts in 2025 it's going to last until 2080. What is the situation in Germany. According to the recent forecast of the German Council of Economic Experts we expect a decline of GDP by 5.1% in 2020, and another increase of GDP of 3.7% in 2021. Actually, when you look at the current state of the German economy and the different analyses and forecasts that have been undertaken since March. You see that there is somehow a convergence to these values of five of minus five minus 5.5% decline of GDP in this year. In March, there were several others that said well the economy could really crash by minus 20% or something like that. And this has meanwhile given way to more realistic forecasts and more realistic assessments. When we mentioned when we published our special report in March with minus 5.4 then given the different scenarios we were calculating. Many people in Germany laughed about us because they thought the economy would be hit much much more strongly than we thought. We believe that the economy could so quickly recover as it did. We observe in the third quarter of 2020 and really tremendous recovery, a very strong one which brings us to a steep V formation of economic development. Then during October it became clear that there are going to be new restrictions because the second wave of infections came up and was accelerating then. And this finally brings us in a situation where the recovery subsets and we will have only a stagnating half year in the fourth quarter of 2020 and the first quarter of 2021. So the whole winter period is going to be a stagnation and all of that is taken into account in our forecast as you see in this graph. This is meaning we take account of the restrictions of November. We have, well you could say speculated but somehow perhaps it was a realistic expectation that such mild restrictions as we have them in November are going to continue in December and probably also in the beginning of next year. And this is meaning that all these restrictions due to this lockdown light, they reduce economic growth in 2020 and in 2021 by minus 0.2 percentage points in both quarters. So, otherwise, we would have even performed a little bit better. And as you could see is this, of course, there's a strong uncertainty, an uncertain environment for this forecast, but probably more uncertainty than we usually have. It's not shown in the report where we usually also look at the confidence intervals and so on. And this does not look like there's additional uncertainty but when you think about it more carefully it's clear that it's much, much more uncertain. It depends on several risks and chances. The strongest risk is that there's not only going to be a mild lockdown as we currently have not only mild restrictions, but they are going to be stronger restrictions in the beginning of next year, for example. So, take one example, if schools and kindergartens, if they are closing again, this will certainly hit production. If value chains are interrupted, it will certainly hit production in Germany. But if we can continue like that, like we have now in November and December, our forecast looks relatively safe. And notice that we are going to have the vaccines. It also looks like vaccine is available in December already. But we are relatively cautious in addressing this chance of having a vaccine too strongly and we don't think that we need to change our figures in the forecast. Because when you think about it more carefully, the vaccine has to be applied. The vaccination takes time until you have immunity, it's taking a very long time. So I think the positive economic effects of the vaccine will come up in autumn of next year at the earliest. We are performing relatively well in Germany as compared to other countries. We are in the same league as the US or Japan, a bit worse than China as usual. But from the other, when you look at the other large countries, Italy, France, Spain and the European Union, the UK, meanwhile outside the European Union. All those large European countries they perform worse during this year. Also, we expect them to perform better than Germany next year just because the decline is so strong this year the upturn is going to be stronger next year. Well, it figures this is meaning the forecast for the Euro area is a minus 7% in 2020 and I plus 4.9% in 2021. This is including Germany excluding Germany the figures are minus 7.7 and plus 5.5% respectively. The federal government but also the European authorities they have taken several decisive steps in order to counter the recession. First of all, I should mention that the ECB has provided the European Monetary Union the countries in the European Monetary Union with large amounts of liquidity with its PEP program, for example, but also with additional programs when you think about the Peltros, which are long term refinancing operations giving banks very favorable conditions, when they provide loans to small and medium sized enterprises. This is well taken to our interpretation we think that the ECB rightly has expanded its liquidity provision to such a large extent. In the report we discussed several aspects and one of my colleagues in the Council, Volker Wieland and I, we wrote CEPR discussion papers in advance before the report of the Council was published by looking at requirements following from the German constitutional courts decision from May of this year, of May of this year and then also what this would mean for monetary policymaking it should not restrict liquidity provision in size, but the restrictions that come out of this ruling certainly put a restraint on the structure of the liquidity provision meaning that the unconventional monetary policy of the ECB in particular the bond purchasing the government bond purchasing program. They undertake in their PEP is restrained to the capital keys of the member states and also we think that the ECB has to comply with the issuer issuance limits. It imposed on itself in the PSPP program so we think that this should continue in the PEP program to and when you look at the current figures. It really looks like the ECB is trying to ensure that these limits are that these restrictions are met. Given fiscal giving fiscal policy measures. When you look at what what when you compare that across the different countries you see that Germany stands out a little bit together with Italy or Japan. In this graph. So the support you get from fiscal policy measures as a percentage of GDP is largest in these three countries and when we compare that say to the Netherlands or Portugal, but also to the US. It looks much much more greater, but we should emphasize that first of all, the blue part of those bars is showing us the direct measures financially affecting spending and revenue side. This is meaning that this is directly having an effect on the government budget. It's a direct fiscal impulse provided to the economy, whereas the orange part only loans and guarantees they are important to stabilize the economy, but it do not necessarily end up being financially effective. So in that regard, countries like Japan, the UK or the US, they provide much more money directly in form of additional spending or revenue reductions. When you look at the different components of those programs, while the German Council of Economic Experts has from the beginning of this year. They reacted to the government decisions, whether it was the extension or the extended access to the short time work program, whether it was the additional provision of a fund that allows to inject equity into firms. Whether it was direct support of small medium sized firms or the additional credit program by the KFW in order to provide loans to larger firms. All of that was well taken. Because you could criticize the one or the other measure and its design, but in the early stages of the fiscal policy during the corona pandemic, we were very, very fair. We addressed the these measures in a very positive way. Let me look at the large fiscal policy impulse that was provided in the first of the beginning of June. The overall assessment by our council was positive. We have different parts of it. There is a revenue part, revenue pillar, a spending pillar and what they are calling the government calls it a future pillar, so to speak. In this pillar for the future you find several measures in the area of infrastructure spending but also spending for research and development. And these measures address the longer term structural challenges the economy faces with respect to digitalization and climate change. There is the one or the other instrument that could be criticized but overall particular this this pillar three that goes into that addresses future challenges is well taken in our opinion. There's a lot of interesting measures and the other two pillars. Overall we think that this economic stimulus package affects the economy by a plus 0.7 to 1.3 percent. There's the German word for two between the point seven and the 1.3 SC apologize. The lower bound of this estimate is given when some of the infrastructure measures that I just mentioned are not undertaken this year or next year, but only later. And as we know from infrastructure spending in Germany for a long time usually there is a delay in implementing these measures. And they come up if more of these infrastructure measures are really spent during 2020 or 2021. What I would like to take out a little bit more in detail is the temporary cut in VAT. There's a lot of debate about this measure in Germany because there is some skepticism with it really has the intended effects on the economy. First of all, the question is how much of the VAT cut is given to consumers in the form of price reductions. We have one study that shows for supermarkets that 100% of the VAT reduction is realized in price reductions. We have a study on fuel stations that shows a variety of different estimates depending on the product and the price elasticity that exists with respect to these particular products. There is a kind of product differentiation already, and it ranges from 40% price reduction due to the VAT cut to 85%. And there is already this huge variation. And while the German Bundesbank, the Deutsche Bundesbank they say about 60% of this cut is realized in prices. This corresponds to the estimates that we, to the estimates that we have for the German Council. In our report, we addressed the other side of this equation by looking at the consumers and asked them in a representative survey, how much of the VAT reduction do you intend to translate into additional consumption or in just bringing forward the consumption you planned for the year 2021. And the respondents they said to about 11% only that they want to have additional spending due to the VAT cuts. And also only about 11% saying that they intend to consume goods they would otherwise have bought in 2021. There is a variation across different income groups. So people in the upper income groups they mentioned or they say they respond that they intend to consume more. It may just be the result of the fact that they can afford larger consumption goods like cars or something like that. But still, we do not expect much of an effect of this temporary cut in the VAT. There is some of the effect but not much. In the further course of the crisis we first of all think that no additional economic impulse is necessary at the moment, just because much of the support measures are still, well, many of the support measures are still in place and the money is not fully used. We see in this left on this left side in this figure on the left side how much is used in the different programs and think about the stop gap aid that is paid out since July, not much of it is used yet. What we have in mind if there is the possibility to change something. It's not adding additional money. It's expanding the option for loss carry forward provisions in taxation. Sorry, loss carry backward provisions in taxation in particular for an additional year that was this would be very important from all point of view. And then energy price reform would also be important and the energy price reform is also addressing long term challenges. Digitalization actually is a measure of, of, yes, a counteracting the recession. When you think about how the pandemic has worked through, we realized to what extent digitalization might help us in that regard. We already realized where, where the large deficits in digitalization are, they usually, well, what they usually are, but we already realized before that they are in the area of the public sector. Think about public administration think about the health system or the education system and all three dimensions we observed a very strong deficits in digitalization. Pretty much the more people could work from home, use home office, the better will the easier it will be to maintain production in the economy. And this also holds for public administration. When you need a building allowance and the final step only misses it's only missing and the public administration does not work from home. And this is just one example showing us where we have to go the next steps of coping with this pandemic. Also regarding the health system, we have a corona alert system, which is much eager, much eager to realize data protection tend to save lives. The economic situation improves sustainably, we have to return to more solid fiscal policy, and the debt break has to be put in place again with its regular restrictions. And when you think about the discretion the federal government still has. You must keep in mind that, given the large amounts of money for which it received the allowance to issue new debt, that all this money will not be used in 2020 or in 2022. This actually adds to a kind of rainy day fund in the federal government, and this would also help to enact the debt break a little bit earlier than many people think. So I think it could be implemented again with its regular requirements in 2022 and not in 2023. On the two side of the long term challenges, we have this discontinuous decline in hourly productivity growth, with the exception of unification of course, but there's a trend of reduced productivity growth. We have the necessity to cope with greenhouse gas emissions to reduce to reduce them more decisively. And we should come up with a reduction at least at the green pass that you show in the in this figure. And we also have to cope with demographic challenges. And as I said before, it starts in 2025 when the baby boomers retire, and it continues until 202080, just because the baby boomers have less children and their children have less children and so on. The important part of the current economic environment we are in is, well, first of all, a structural challenge so to speak because of the additional protectionism that has come up in recent years. Since the financial crisis we observed new protectionism in several regards not only with respect to the US China trade war but also regarding other things. And I would also say that Brexit is a kind of protectionist measure so to speak. I hope that a change to the Biden administration is helping us to return into multilateral negotiations with the US and then come up with a better solution for the world. This is something we have to address, in particular because climate change is one of those challenges we can address there. The key and I would like to add this first is that to mention this first before I come up with the recovery and resilience fund. The challenge in the European European monetary union is, please apologize. The challenge at EMU is that we have some countries in the monetary union that do not have a sufficiently competitive economy. Some countries that have a debt to GDP ratio which is way too high. When you make a thought experiment. Think about a situation in March of this year, when the corona crisis the corona pandemic hits the European economies, a situation in which all members of the European monetary union had a low debt to GDP ratios, and we're sufficiently competitive. And we would not have needed any additional reaction at the EU level no additional fiscal policy action at the EU level, because each member state could react decisively on its own. But this is not a situation. We have a country like Italy, which does not only experience the same trend of productivity decline or decline of productivity growth as other developed countries. It's actually a zero productivity growth in Italy since it joined the European monetary union in 1998. And this bad situation stands out. Also, the debt to GDP ratio of that country stands out. And something must happen in that regard. Some consolidation, some reform must take place in order to ensure that the countries are better prepared when the next crisis hits. The recovery and resilience fund is one possibility to help EMU member countries to come up with with a higher competitiveness of their economies in the future. Not only because the resilience fund, the recovery and resilience fund is finally paying for some infrastructure that could help cope with digitalization and climate change. But just because the additional money allows governments in the EMU member countries to conduct structural reforms, the necessity of which is known to everybody in those countries and also the necessary measures in detail are known. The additional money from the EU helps them to provide the kind of compensation for those that have to undergo the structural reforms. This is at least the hope we are having with this kind of recovery and resilience fund. Okay, I'm going to finish now I guess I'm somehow in time. I hope so at least. So let me conclude, first of all, I concentrated a little bit on the German economy, and I hope this is okay because, well, as the chairman of the German Council of economic experts I can say a little bit more about Germany than about Europe, and also much more about Europe than about the US or China. The idea is that the German economy will have to cope with the corona crisis further. It will take us some time and I also guess that it takes some time until vaccination is successful and probably we will have better possibilities in the next winter term to go through the situation without an additional wave of infections. It is and it has been a very challenging, exceptional situation that we faced the decline of GDP in the second quarter of this year is historical. Overall, when you make the calculation for the whole year, the decline of GDP during the financial crisis was stronger in Germany than the one that we now observed the pandemic, the corona crisis. But still it is a very important decline of GDP a very, we have very strong economic consequences of it. This triggered decisive and strong economic countermeasures by the European institutions and by the national authorities. Germany stands out with very large measures. It has undertaken. We have long term challenges. Well, four of them internationalization and protectionism together with the challenges in the European Union play a role. We have demographic change. We have climate change, and we have digitalization and to, we have to address this technological change as well. There are four mega trends that accompany us. And somehow the situation can be used to cope with these problems better and be better prepared than we were before the crisis. The European measures, I can only link this to the hope that the European member, the member countries of the European Monetary Union finally come up with more resilient economies in order to cope with future crisis more successfully. Thank you very much for your attention.