EconPol Policy Reports

In recent decades, China has risen to become Germany’s most important trading partner for international trade in goods. Has Germany become too dependent from trade with China? An analysis using direct and indirect value-added linkages along the supply chain shows that China plays an important, but by no means dominant role for Germany as a supplier or destination market. However, in a survey conducted by the ifo Institute, 46% of German firms in the manufacturing sector state that they currently depend on important intermediate inputs from China. Of those, almost half of the firms are planning to reduce imports from China in the future. The most frequently mentioned reasons for reducing imports from China are the desire to decrease dependencies and increase diversification, increased freight costs and disruptions in transportation, as well as political uncertainty. An analysis at the product level shows that the German economy depends on several critical industrial goods and raw materials from China.

This paper conceptualizes an appropriate path for fiscal policy starting from the early phase of the pandemic up to the final transition to a post-pandemic new normal. Using this yardstick, it assesses the initial fiscal response of Member States. It exploits fiscal projections and program data to analyze the adjustment to the economic recovery. For loan guarantee and short-time work schemes, it identifies program-specific parameters that improve target precision and identifies examples of more and less convincing program designs.

This article discusses the economic effects of a potential cut-off of the German economy from Russian energy imports. We show that the effects are likely to be substantial but manageable. In the short run, a stop of Russian energy imports would lead to a GDP decline in range between 0.5% and 3% (cf. the GDP decline in 2020 during the pandemic was 4.5%).

The Great Financial Crisis caused a deep recession and led to very large public deficits. When financial market tensions erupted, many European countries were forced to reduce their deficits. This ‘austerity’ is often credited with the disappointingly slow recovery during the years after the financial crisis. One reason for such a slow recovery could have been that the impact of a reduction in the fiscal deficits is larger than anticipated during a recession, especially if it is accompanied by financial market tensions. At the height of the financial crisis and in its immediate aftermath, this might not have been properly taken into account.

In an increasing number of sectors, concerns are rising that foreign firm participation may pose risks to public order. Many developed countries have adopted or extended their investment screening mechanisms to control inward foreign direct investment in strategically important sectors over the last years. This paper documents the development of investment screening in OECD and EU countries and provides the first discussion from an economic perspective. We review existing and propose new explanations for the adoption of investment screening. Our exploratory quantitative analysis suggests that countries with higher levels of technological development and with a stricter regulatory environment for foreign investment are more likely to introduce investment screening. Contrary to the popular wisdom, we do not find evidence that higher Chinese inward investments are associated with the implementation of investment screening.