Economic, fiscal and monetary impact of the Corona measures on Bavaria, Germany and Europe  

_ Yuri Kofner, junior economist, MIWI – Institute for Market Integration and Economic Policy. Munich, 10 January 2021.


Two-thirds of the real GDP decline in Germany may be contributed to a direct effect of the lockdowns, only one third is likely to be caused by a decline in demand for German exports abroad.[1] The first shutdown from March 22 to May 6, 2020 cost the economy around EUR 300 to 500 billion.[2] The second shutdown in November to December 2020 cost the economy another approx. EUR 50 to 70 billion.[3],[4] Each further week of the lockdown costs the economy around EUR 3 to 3.5 billion.[5]

The main losers of the lockdown policies are retailers, catering, and accommodation. From November 2020 to January 10, 2021, the sales losses of the retail sector amount to approx. EUR 36 billion. Online commerce and platform companies are the biggest winners of the crisis. During the same period, sales in online shopping amounted to EUR 26.2 billion, which is a 27 percent increase compared to the prior-year period. In 2020, the gross number of transported parcels increased by around 15 percent compared to 2019. Amazon makes about 50% of online sales in Germany. [6],[7]

As a result, German gross domestic product will shrink by 5.6 percent in 2020, which is comparable to the global financial recession (-5.7 percent). If a slight lockdown lasts up to and including March 2021, Germany’s GDP growth will only be 3.1 percent in 2021. This has been dampened primarily by the extension of the store closures, but also by the renewed increase in VAT, the costs of climate policy, and the negative effects of Brexit. In 2022 the GDP recovery rate might speed up to 4.6 percent.

What is often forgotten is that the German economy was already about to plunge into a technical recession in 2019. At that time, GDP growth was only 0.6 percent. The reasons for this are not only to be found in the slack demand in China and increasing protectionism in world trade but also in a wrong federal industrial policy that is increasingly distancing itself from the principles of the social market economy.

In 2020 the unemployment rate rose to 5.9 percent, from 5 percent in 2019. In 2021 it will decrease due to the hoped-for increase in demand and amount to 4.8 percent.[8] Short-time work is seen by many economists as a good instrument to cushion the negative effects of the lockdown on the labor market. During the period from May to December 2020, the number of short-time workers averaged at 3 million people (6.7 percent of the labor force). In May 2020 it peaked at 5.8 million people.[9]

The federal government’s fiscal Corona stimulus package for 2020 amounts to almost 1 trillion EUR (989 billion EUR) or 28.8 percent of Germany’s GDP in 2019. For comparison: in the United States Corona related fiscal expenses amounted to 14.1 percent of GDP; in France 19.3 percent; in Italy 6 percent; in Austria 14.4 percent; in Sweden 13.5 percent.[10]

The effect of the federal government’s corona stimulus package is estimated to have been quite minimal: it increased German GDP in 2020 by only 0.9 percent.[11] The temporary lowering of the value-added tax only slightly stimulated consumption: the tax brought 6.3 billion EUR in additional consumption. This corresponds to an increase in private consumer spending of only 0.6 percent compared to 2019, which is disproportionate to the costs of EUR 20 billion. Instead of being a temporary measure, taxes and duties be reduced conclusively since Germany has one of the highest tax burdens in the world.[12]

On the contrary, the federal government has imposed a new CO2 tax, due to which one liter of petrol or diesel will be seven or eight cents more expensive in 2021 compared to the previous year. Taxes now make up two-thirds of the gasoline price and around 60 percent of the diesel price, while fluctuations in the oil price are barely noticeable at the gas station.[13]

Overall, a decline in federal, state, and local tax revenues of EUR 71 to 81 billion (5 to 9 percent) is to be expected for 2020 compared to 2019. Government spending will rise by a total of EUR 182 billion or 11.7 percent. Compared to the forecast of 2019, the federal tax revenues will be 15 percent lower in 2020 and approx. 12 percent in 2021, the tax revenues of the federal states and municipalities will be 8 percent lower in 2020, and approx. 5.8 percent in 2021.[14] In I-III 2020 the federal government paid around 24 percent (EUR 48.3 billion) more than in the same period of the previous year. At the same time, tax revenues fell by 11 percent (EUR 28 billion). The Corona measures lead to a financing deficit of EUR 157.1 billion.[15]

Overall, the cumulative federal budget spending in 2020 increased by 11.6 percent compared to 2019, while the government revenue decreased by 5 percent. As a result, the financial balance will be -4.9 to -6.5 percent of German GDP in 2020 and -4.1 to -4.3 percent in 2021.[16],[17]

As a result, German national debt will rise from 59.5 percent of GDP in 2019 to 72.6 percent in 2020 and 73.2 percent in 2021.8

As already said, the federal economic policy is moving further and further away from the regulatory framework (Ordnungspolitik) of the social market economy in the direction of dirigiste market interference. Between 2005 and 2020, government subsidies per capita rose by around 38.9 percent to EUR 206 billion. In 2020, subsidies that are detrimental to a regulatory market economy totaled EUR 21.7 billion. Realistically, around EUR 10 billion of the subsidies could have been canceled.[18]* 


From January to October 2020 the real turnover of the Bavarian hospitality industry decreased by 33.8 percent in comparison to the same period of the previous year, the number of employees decreased by 14.9 percent. The real turnover of the Bavarian retail trade actually increased by 5.6 percent in comparison to the same period of the previous year, however, the number of employees decreased by 0.3 percent. The real turnover of the Bavarian motor vehicle trade decreased by 7.6 percent, the number of employees decreased by 0.9 percent.[19]

As a result, from March to October 2020, an average of 22.6 percent of employees in Bavaria have been in short-time work.[20] From 2019 to 2020, the unemployment rate in Bavaria rose from 2.8 to 3.6 percent. In 2021, after the insolvency obligation has been completely reinstated, the unemployment rate can increase to up to 6.5 percent.

In 2020 the Bavarian gross regional product will shrink by 6.5 percent, which is 1 percentage point lower than the recession of 2009. In 2021 the recovery of the Bavarian economy will amount to around 3 percent, in 2022 tentatively 2.6 percent. Here again, it should not be forgotten that the automotive industry, which is so important for Bavaria, is suffering from the structural change forced by the climate agenda. Because of this, among other things, such as lower demand from the Asian sales markets, the growth in the regional domestic product was only 0.5 percent in 2019.

Compared to the forecast of 2019, the decline in tax revenues of the Bavarian state amounts to EUR 3.5 billion in 2020, EUR 3.7 billion in 2021, and EUR 3.2 billion in 2022.[21]

Bavaria’s national debt rose from EUR 26 billion in 2019 to EUR 46 billion in 2020 (EUR 92 billion if one includes the credit authorization for the Bavarian Rescue Fund – BayernFonds). That is an increase of 77 and 330% respectively.[22] The new corona debts are to be paid off within 20 years beginning from 2024 with a payment of EUR 1 billion per year. However, this seems rather unrealistic. Even during the golden years of the 2010s, the Bavarian state seldom got past debt repayments of EUR 0.5 billion a year. Moreover, the repayment of old debts has also been suspended.

Compared to the other federal states, in 2020 Bavaria is one of the front runners in terms of the proportion of people in short-time work (22.6 percent on average), the increase in the unemployment rate (28.6 percent y.o.y.), and new debt (31 percent in relation to household expenditure compared to 2019).22

Between 2008 and 2017, Bavaria also paid the highest-burden in the horizontal state financial equalization with EUR 62.9 billion (per capita almost EUR 500).[23]


Largely because of the freedom restrictions and business closings implemented by the European governments, the EU’s gross domestic product will fall by 6.7 percent in 2020. For comparison: in 2009 the EU GDP fell by 4.3 percent. In the years 2021 and 2022, the European economy might grow again by 4.7 and 3.9 percent. In 2019 the EU’s GDP growth rate was 1,5 percent.

From 2019 to 2020, the unemployment rate in the European Union rose from 6.4 to 7.6 percent. In 2021 it might top out at 7,9 percent before lowering back to 5,8 percent in 2022.[24]

In addition to the corona restrictions, the effects of Brexit must also be taken into account: The EU single market will shrink by 16 percent. France, which is generally in favor of (climate) dirigisme, will be able to exercise greater influence on European industrial policy. Germany will have to increase its net contributions to the EU budget in 2021-2027 by EUR 14 billion to EUR 42 billion annually to make up for the UK leaving the EU. And last but not least,  the loss of German GDP due to the negative trade effects of Brexit is estimated to be 0.3 percent, the loss of the Bavarian GDP at 0.1 percent.[25],[26]

Germany traditionally stems the highest-burden in the cumulative redistribution by the EU: between 2008 and 2017 its net transfers amounted to EUR 137.7 billion (per capita almost EUR 170).23

The new EU budget for 2021-2027, as well as the fiscal Corona stimulus package (the so-called “Reconstruction fund”) amounts to a total of EUR 2.6 trillion, which is tantamount to 18.8 percent of 2019 EU GDP.10

In order to partially finance this massive increase in expenditure, the EU will independently introduce new taxes on a supranational level: 1. A plastic tax of 80 euro cents per kg of which 1/4 (20 euro cents) will go to the national governments and 3/4 (60 euro cents) are to be paid to the EU. 2. The expansion of the emissions trading system (ETS) to other sectors and the introduction of a CO2 border tax (CBA, Carbon Border Adjustment). It is estimated to reduce Germany’s GDP by 0.03 percent.[27] 3. A digital tax of 3 percent, based on the “market land principle”, on sales made through online advertising, the sale of user data, and the provision of online marketplaces. Such a tax might have a similar effect to a profit tax, will not have any systematic effects on final prices and services. Brussels might generate revenues of EUR 3 to 4 billion.[28] However, due to immense opposition from the United States and from the large US-American digital corporations, it is still doubtful whether this initiative can be realized. Google, Microsoft, and Facebook are three of the four largest lobbyists in Brussels.[29]

Between the end of 2019 and the end of 2020, the total national debt of the EU member states rose from almost 80 to almost 90 percent of EU GDP. As part of the Corona Reconstruction fund (EUR 750 billion) decided in July 2020, the EU (and not just the EU member states separately, as before) took out debts and thus de facto legitimized the communitization of EU debt. While this has only been publicly presented as a one-time exception, it is likely to create a precedent for a permanent practice, as was the case with the European Stability Mechanism (ESM) during the banking crisis in 2011-2013. The mutualization of debts is another step, which increases the political dependency of the EU member states on one another and on Brussels.

The use of the Reconstruction fund for other purposes besides directly combating the consequences of the Corona crisis, e.g., for climate policy and digitization, is legally highly problematic according to Article 122 of the Treaty on the Functioning of the EU.

The European Commission has also taken a further step in the direction of fiscal union with the “SURE instrument” for loan financing of national short time working programs to combat the effects of the Corona-measures. This instrument will primarily benefit those member states that have built up high debts in recent years and have failed to implement reforms to increase economic growth.

Furthermore, since March 2020, the European Commission has suspended the macroeconomic convergence criteria of the Stability and Growth Pact (SGP). For 2021 and afterward, the European Commission plans to relax these criteria in the long term in order to make a more expansive fiscal policy and even more debt borrowing possible for the member states.

The “Corona” -related medium-term expansion of the ECB monetary policy amounts to EUR 3.4 trillion. This corresponds to 28.9 percent of the GDP of the euro area in 2019. Between December 2019 and November 2020, the M0 money supply in the euro area increased from 3.2 to 4.6 trillion EUR. By June 2021, the M0 money supply may increase to EUR 6 trillion. In July 2008 it amounted to EUR 0.9 trillion. This expansionary monetary policy has resulted in a “zombification” of the European economy. The years between 2020 and 2030 are likely to become a decade with very low GDP growth. After overcoming the “liquidity trap” this might also lead to inflation or stagflation.[30]

Combating the economic consequences of the Corona-measures is being used by pro-centralizing political forces in Brussels and the member states to further deepen European integration. The mutualization of national debt (the so-called “Hamiltonian moment”) and the expansion of supranational fiscal competencies are the decisive processes.


[1] Sforza A. und M. Steininger (2020). Globalization in Times of Covid-19. CESifo.

[2] ifo Institut (2020). Die volkswirtschaftlichen Kosten des Corona-Shutdown für Deutschland: Eine Szenarienrechnung.

[3] Bardt H. (2020). Lockdown light darf nicht auf Industrie übergreifen. IW Köln.

[4] Grömling M. (2020). Lockdown 2.0 kostet 2020 zwei und 2021 einen Prozentpunkt. IW Köln.

[5] Hüther M. (2020). Unternehmen in Existenznot. IW Köln.

[6] Rusche C. (2020). Lockdown könnte den Handel 22 Milliarden kosten. IW Köln.

[7] Goecke H., Rusche C. (2020). Wie sehr leiden die Innenstädte? IW Köln.

[8] IfW Kiel (2020). Weltwirtschaft im Winter 2020. Kieler Konjunkturberichte.

[9] Link S. (2020). Kurzarbeit sinkt im Dezember geringfügig. ifo Institut.

[10] Helaba Research (2020) and own calculations.

[11] Fuest C. (2020). Stellungnahme im Deutschen Bundestag. Drucksache 19/20057. ifo Institut.

[12] ifo Institut (2021). Hat die Mehrwertsteuersenkung den Konsum belebt?

[13] Schaefer T. (2021). Sprit wird deutlich teurer. IW Köln.

[14] IW Köln (2020). IW-Konjunkturprognose und Konjunkturumfrage Winter 2020.

[15] Destatis (2021). Corona-Krise führt zu Finanzierungsdefizit von 157,1 Milliarden Euro.

[16] IW Köln (2020). IW-Konjunkturprognose und Konjunkturumfrage Winter 2020.

[17] Boysen-Hogrefe (2020). Wo stehen die öffentlichen Finanzen in und nach der Corona-Krise? IfW Kiel.

[18] Laaser C.F., Rosenschon A. (2020). Kieler Subventionsbericht 2020: Subventionen auf dem Vormarsch. IfW Kiel. * Estimates without the fiscal Corona stimulus package.

[19] Bayerisches Landesamt für Statistik (2020). Zahlenspiegel zur Corona-Pandemie.

[20] Assessments by Link S. (2020). Ifo Institute and own calculations.

[21] Bayerisches Staatsministerium der Finanzen und für Heimat (2020). Steuerschätzung November 2020.

[22] ifo Institut (2020). Rekordverschuldung nach Corona – wie steht es um die Belastung der Länderhaushalte?

[23] Kullas M., Rudolph K. (2020). Umverteilung durch die EU und den horizontalen Länderfinanzausgleich in Deutschland. cep.

[24] ifo Institut. (2021). Ifo Konjunkturprognose Winter 2020: Das Coronavirus schlägt zurück – erneuter Shutdown bremst Konjunktur ein zweites Mal aus.

[25] Felbermayr G. (2019). Brexit: A Hard-but-Smart Strategy and Its Consequences. IfW Kiel.

[26] ifo Institut (2018). Ökonomische Auswirkungen des Brexit für Bayern und Oberbayern.

[27] Government of Finnland (2020). Carbon Border Adjustment Mechanisms and Their Economic Impact on Finland and the EU.

[28] ifo Institut (2018) Die Besteuerung der Digitalwirtschaft: Zu den ökonomischen und fiskalischen Auswirkungen der EU-Digitalsteuer.

[29] Lobbyfacts (2020). Lobbying costs  of companies in Brussels.

[30] Sinn H.W. (2020). Corona und die wundersame Geldvermehrung in Europa. ifo Institut.


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