Berlin The bazooka was ready to fire, but nobody really wanted to trigger it. The federal government launched an unprecedented rescue program with commitments totaling more than one trillion euros to counter the expected economic upheaval from the corona crisis. Finance Minister Olaf Scholz (SPD) described the measures as a “bazooka”, with “oomph” he wanted to shake off the crisis.
A year and a half later, looking at the access numbers for the Corona aid programs, it is clear: The bazooka had to fire much less often than feared. This was particularly true of the Economic Stabilization Fund (WSF), which the federal government had set up for corporations particularly hit by the crisis.
The volume: 600 billion euros for direct government investments or credit protection. Lufthansa, for example, was saved via the WSF – but it has remained an exceptional case.
A mere 1.45 percent from the WSF was called up. 43 companies had applied for a distribution, 21 have so far received one. The Federal Ministry of Economics had reckoned with a five-digit number of applications, as can be seen from the answer to a small request from the FDP, which is available to the Handelsblatt.
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The other crisis instruments were not as extreme as with the WSF. The trend, however, is the same: a significant proportion of companies got through the crisis just as well – and the feared wave of insolvencies did not materialize.
According to Handelsblatt calculations, only 64 percent of the funds promised have been called up from the other aid programs of the federal government such as the bridging aid. Almost 30 of a total of 82 billion euros have thus been left behind. If you add the previously unused funds from the WSF, 621 billion euros in government aid are on the heap.
The special loans and liquidity measures granted by the Kreditanstalt für Wiederaufbau (KfW), for which there is no cap in principle, are below expectations with a total of around 67 requested aid and 53 billion euros disbursed.
“Many companies are far less badly than expected,” says Justus Haucap, director of the Düsseldorf Institute for Competition Economics (DICE). “Some even had a bomb year on business.”
Little demand for corona aid
Even sectors that have been in crisis for a long time make little use of the aid. This can be seen, for example, in Bridging Aid III, with which the Federal Government wanted to help companies that have suffered from lost sales since the end of 2020.
Not even half of the cinema operators applied for the aid, although the halls had to remain empty for the entire funding period since November, according to statistics from the Federal Ministry of Economics. A comparable quota of applications came from hairdressing and beauty salons – they too had been closed for months. Despite the downturn in travel, fewer than 40 percent of the tour operators showed up.
Has the federal government misjudged itself, were the aid pledges grossly exaggerated? One thing is certain: Germany’s gross domestic product (GDP) fell by just almost five percent in 2020. This makes the Federal Republic of Germany one of the less hard hit nations in the euro area, where the average GDP decline was 6.3 percent. On the other hand, the lavish commitments also ensured a certain relaxation in the banking market.
The existence of the WSF, for example, meant that some large companies did not have to be rescued with the same WSF, it is said in government circles. Private banks helped companies with loans despite the tight liquidity situation.
“It was important and right to equip the programs well and comprehensively in order to send a clear signal of adequate funding and stabilization to the market,” explains a spokeswoman for the Ministry of Economic Affairs.
The fact that funds are still available is a good sign that the economy has picked up again this year. Problems with the payouts and a lack of information are negligible as the reason for the low demand.
A good starting position saved from too harsh a crisis reaction
The most important reason for resistance to the crisis is likely to be less the political measures. There are many reasons for the low number of requests, says FDP economic politician Reinhard Houben. For example, that the programs were badly tailored to the needs of those affected.
“But the truth is also that many companies have proven to be surprisingly resilient and have therefore come out of the crisis lightly,” says Houben. This is shown in particular by the equity ratio – the proportion of one’s own financial resources in relation to total capital.
The equity ratio is considered to be elementary for the robustness of the economy because it has a significant impact on the creditworthiness of companies. At the end of the 1990s, when Germany was “the sick man of Europe”, the rate was still around 20 percent – hardly half as high as in Denmark, for example. The bursting of the new economy bubble hit Germany more than average shortly afterwards.
In the course of the catching-up process of the German economy, the equity ratio also increased, so that the Federal Republic was already better positioned during the global economic crisis of 2007/2008. According to the Ifo Institute, the German equity share climbed to 45 percent by the end of 2019. The gap to Denmark was only five points.
The president of the German Savings Banks and Giro Association, Helmut Schleweis, said some time ago that the crisis hit some companies hard, which is why the aid is of immense importance. But: “Most companies will master the crisis because they have built up high liquidity buffers and equity.”
This also takes away the worry of a wave of bankruptcies after the end of state aid. Because the equity situation in the corporate landscape has hardly deteriorated. In a KfW study, half of the companies reported that the quotas remained the same, while 17 percent reported an increase. “I consider the extent of possible additional bankruptcies to be limited,” says KfW chief economist Fritzi Köhler-Geib.
This is also confirmed by a look at the statistics. The number of applications for corporate insolvency has been increasing since June. This is mainly related to the obligation to file for insolvency, which was suspended until April 30th for those companies that had not yet received certain support funds. For all other companies, the suspension ended at the end of 2020.
But there can be no question of a sudden increase. In July, the number of bankruptcies was only slightly higher than in the previous month, as the Federal Statistical Office announced on Tuesday. This is more than a quarter below the level for the same period in 2019.
“The insolvency figures will rise above the pre-crisis level,” says economist Haucap. The end of the corona aid can be expected at the latest. “A wave of bankruptcies is unrealistic, because so many companies are simply not dependent on the state’s drip,” estimates Haucap.
Economists warn of distortion of competition through corona aid
Finance Minister Scholz and the outgoing Minister of Economic Affairs Peter Altmaier recently agreed to extend the bridging aid for companies in need and the simplified access to short-time allowance once again. That had earned them criticism.
“The insolvency statistics show that the feared wave of insolvencies has been avoided,” says Achim Wambach, President of the Center for European Economic Research (ZEW). The distorting effects should therefore now be looked at.
The ministers countered by pointing out that only companies with appropriate evidence of their sales collapse would receive the subsidies.
“But that has not always been successful, and these slumps are now also caused by structural change in the economy,” complains Wambach. If retail sales in the city centers collapse due to the corona lockdown and some customers remain loyal to online shopping in the long term, the state cannot support retailers in need forever.
It is hardly surprising that the outgoing federal government did not end the aid during the election campaign. It is all the more urgent for the upcoming government to tackle the issue.
“Otherwise, the distortions of competition also lead to long-term problems,” explains Haucap. For example, the shortage of skilled workers could increase in future industries because the corona aid would keep workers in companies with no future.
The crisis measures will expire at the end of the year. It is questionable whether there will be a new government coalition by then. If so, their first task with regard to the corona aid would be: to do nothing. The experts agree on that.
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