Open faster or slower ?: Easing would be more expensive for the economy

Many companies are up to their necks. Quick opening is necessary, at least that seems a logical requirement at first glance. A simple calculation shows why this will not help the economy.

For months, Germany has been moving from one shutdown extension to the next. It seems understandable that even before the latest extension of the corona measures until March 7, the patience of some representatives of the economy was torn.

The managing director of the German Hotel and Restaurant Association, Ingrid Hartges, asked the German Press Agency "urgently clear criteria" at the beginning of the week as to when the establishments could be reopened. Stefan Genth from the retail association HDE pleaded for a "realistic opening perspective". His association also called for relaxation measures from an incidence value of over 50.

The frustration is understandable: the opening criteria are unclear. Now it should be a stable seven-day incidence of a maximum of 35 new infections per 100,000 inhabitants, previously it was 50 per 100,000 inhabitants. Once again, the actual decision as to when the shutdown will end is postponed to March 3rd. Then representatives from the federal and state governments want to meet next time. So there are no clear perspectives, openings only for hairdressers.

Many companies are up to their necks, the corona aid is often not enough and is only paid out to many companies with a delay of months. The demands for opening perspectives therefore sound logical. If it doesn't open soon, then the economy will be further down, so the concern. But proponents of the extension say: even if early openings will help in the short term, a quick end to the shutdown could even be more expensive for everyone in the end.

Economy runs at 90 percent

That sounds surprising at first. Because of the closings, the German added value is according to the economic chief of the Ifo Institute, Timo Wollmershäuser, at least 1.5 billion euros below their potential. To put it into perspective: In the pre-crisis quarter, Germany generated around 18 billion euros per week. The economy operates at around 90 percent without trade, culture, gastronomy and other industries.

Without openings, you probably won't get back to 100 percent. Then how should early openings harm the economy?

To do this, you have to put yourself in the shoes of summer 2020. The seven-day incidence had dropped below 3 per 100,000 people. Restaurants, shops, hotels and even borders were open. But within a few months the number of corona infections rose again. A brief economic recovery of five months was followed by a rapid break. It's the shutdown that the country has been in with one change or another from November to probably early March.

It's actually absurd. The very opening that had helped the closed industries and made the economic "V" appear perfect, led to the economy shrinking again with the shutdown. From today's perspective, five months of recovery were followed by four months of closings.

This could also happen today after a quick opening, even if better hygiene measures and follow-up through tests could curb the spread somewhat compared to autumn.

Because even with better preparation, one month of opening could currently result in an even longer shutdown. This is due to the new virus mutation B.1.1.7, which, according to virologists, is much more contagious than the original virus. According to the President of the Robert Koch Institute (RKI), Lothar Wieler, its R value, the reproduction number, could be 0.5 higher. Instead of 10 people infecting 9 more as at the beginning of February, 10 people would infect 14 and spread the virus faster. With the exponential distribution without shutdown, the incidences could rise again very quickly.

Few opportunities for a quick end to the measures

The hope of containing the virus with a nationwide vaccination of the population and thus preventing lockdowns is also clouded. There is a lack of vaccine and the effectiveness of the available vaccines against future mutations cannot be accurately predicted. The further the virus spreads, the more mutations could arise. The fight then becomes more and more complicated.

If the goal of keeping the incidence low remains, a further shutdown would have to be made in a few weeks after the first easing. Opening for a few weeks could be followed by another slump, with consequences similar to those in autumn. The costs would again be at least 1.5 billion euros per week, if not higher, because the situation in other industries could also worsen.

So how can a way out of the dilemma be found? Against this background, how can economic output quickly increase again without major losses?

One possibility would be a quick end to the shutdown with the greatest possible hygiene measures. This would keep the economic damage low for many industries. But the strategy would miss the target of fighting the pandemic. So the openings would have to go hand in hand with the acceptance of incidences in the three-digit range per 100,000, at which the care of all Covid patients would no longer be guaranteed at some point.

The other option to continue with the pandemic fight and achieve a quick opening would be a strict lockdown with the clear perspective that some companies may only reopen when the virus is really under control. In the meantime, the closed businesses would have to be compensated with lavish payments.

One example of how this could work is the suggestion made by 14 scientists from different disciplines with the sounding name of "No Covid". The Braunschweig virologist Melanie Brinkmann, but also the economists Clemens Fuest and Andreas Peichl from the Ifo Institute are among the signatories. Their goal is not to have the virus completely eradicated as the name suggests.

Instead, the scientists want to orientate themselves towards countries like New Zealand, Australia and other Asian countries where the pandemic is under control. Their strategy aims to lower the seven-day incidence with a strict lockdown first below ten per 100,000 and then gradually open schools, then shops, and finally, with a seven-day incidence of 0 in 100,000, the measures completely loosen. They want to control recurring outbreaks through travel restrictions in and out of risk areas, much more testing, and better case follow-up so that normal life can be maintained.

That sounds expensive. But it also opens up the prospect that a long lockdown after a few months could lead to a situation in which the incidence can be kept under control. If that succeeds, no further closings would be necessary. After four, five or six weeks, many companies could reopen permanently.

No Covid with all its restrictions may not be able to be implemented. But other forms of a more consistent, longer lockdown could keep the spread of the coronavirus low for longer and thus cause lower costs in the long term than opening it for a few weeks, followed by another closure for a few weeks. So you slipped from wave to wave until the population was vaccinated. The number of weeks in lockdown would be higher in such an open-and-close scenario, and so would the economic damage.

A hard and long shutdown can therefore enable a faster, cheaper way back to normality – also to an economic one.

The article first appeared on Capital.de.