Almost hourly, the consequences for the economy worsen in the Corona crisis. This affects thousands of companies across all industries and millions of employees. And what about people who can't get to work because of school and daycare closures?
German Chancellor Angela Merkel: Companies and employees should not be abandoned in the Corona crisis. ©Imago
The Corona crisis has dramatic economic consequences: Stores and factories are closing, orders and sales are collapsing. Companies fear for their existence, employees worry about their jobs. Politicians now want to put together additional emergency packages with employers and trade unions – also to prevent major wage losses. Expanded credit programs for companies already underway.
Following a top-level meeting with the social partners in Berlin on Wednesday, Labor Minister Hubertus Heil (SPD) sent a clear signal: companies and employees should not be left in the lurch in this unprecedented crisis. Chancellor Angela Merkel (CDU) prepared business and workers for tough weeks – she guaranteed in her televised address, according to a text of the speech circulated in advance, that the German government was doing everything it could to cushion the economic impact. An overview of measures:
Government plans billion-dollar aid package for solo self-employed workers
In the Corona crisis, the federal government is planning an aid package of over 40 billion euros for solo self-employed workers and other microenterprises. This is what the Deutsche Presse-Agentur learned from government circles on Thursday. The "Spiegel" was the first to report on it. Previously, there had been talk in government circles of a volume of up to 50 billion euros.
From circles of the Ministry of Economics it was said that there should be no "solidarity gap" for micro-enterprises and solo self-employed people. "The chain is only as strong as the weakest link – that's why we're reaching out to everyone: the very small and the big ones. After all, that's what characterizes our social market economy, and that's what will help us weather this crisis."
The Corona Committee of the Federal Cabinet met in the morning. The aid package is to be launched quickly. Direct subsidies and loans are planned.
Because of the drastic effects of the Corona crisis, many solo self-employed people fear for their existence – such as musicians, photographers, artists, alternative practitioners, interpreters or nurses. Many businesses had to close, fairs, events and concerts were canceled. Orders and sales of many solo self-employed have collapsed.
As reported by "Der Spiegel," ten billion euros of the package would be given as direct subsidies to ailing one-man businesses and microenterprises, with the remainder of 30 billion euros to be given as loans. Finance Minister Olaf Scholz (SPD) wants to organize the fund in the form of a special federal asset that would be allowed to take out loans on its own. Because the special fund would have the creditworthiness of the federal government, it could borrow the funds cheaply and pass them on to those affected at correspondingly low rates.
Continued payment of wages for childcare
To slow the spread of the coronavirus, daycare centers and schools in the countries are closed until after Easter. This presents many employees with children with a major challenge: how to organize child care? In many cases, employees can work from home offices. But others cannot. And if they themselves have to look after the children at home, they are often unable to go to work. In this case, wages will continue to be paid, but unlike in the case of illness, this will only last a few days.
Heil now announced that the federal cabinet is expected to pass a law next Monday that would allow employers to extend continued wage payments in the event of school and daycare closures. The companies should then be able to get the money back from the state. A staged procedure is planned over a limited period of time so that wages do not plummet. It is about children under twelve years. Heil did not give any further details.
Top-up short-time allowance
The Bundestag and Bundesrat have passed an extended short-time allowance. This was already a key tool in the 2008/2009 financial crisis to prevent mass layoffs. In the Corona crisis, there is already a rush of companies nationwide. Specifically, more companies than before can apply for the benefit from the Federal Employment Agency (BA). The BA takes over 60 percent of the lost net wages if a company sends employees on short-time work. For employees with children, the figure is 67 percent. Heil pointed out that the money is there – the BA has a buffer of 26 billion euros.
The problem: Unlike the financial crisis, the corona crisis cuts across all sectors. In many companies, not 30 or 40 percent of employees would be put on short-time work, as was the case back then, but all of them, according to DGB head Reiner Hoffmann. This is a different dimension. Although some collective agreements, such as those in the metal and electrical industries, provide for short-time allowances to be topped up – to almost 100 percent of net pay. Overall, however, only a minority of pay-scale employees would receive a contractually agreed-upon top-up in addition to short-time pay, according to the union WSI collective bargaining archive.
This is why countermeasures are now to be taken. Politicians and social partners wanted to jointly cushion wage gaps in short-time benefits, Heil said. The aim is to prevent wages from falling over a longer period of time and to avoid hardship. Otherwise, this could hit low-income earners in particular, Hoffmann said. A joint statement from the ministries and the social partners said they would now hold discussions, with the participation of the government, "in the short term" on how to shape a financial increase through collective bargaining solutions.
Unlimited credit programs
Economics Minister Peter Altmaier and Finance Minister Olaf Scholz (SPD) announced unlimited loan programs last Friday – another unprecedented move. This is to ensure liquidity for companies that run into financial trouble. The state thus assumes more risks. This could cost "tens of billions," Scholz said. Companies can now apply for the aid loans through their principal bank, the state development bank KfW and the German credit industry announced Wednesday.
KfW is offering commercial banks to assume 70 to 80 percent of the risk with the help of government guarantees. This should facilitate the granting of loans. "In order to mitigate the economic consequences of the Corona crisis, companies must now be helped quickly and in an uncomplicated manner," said the Chief Executive Officer of the Association of German Banks, Christian Ossig. He assured a quick review of applications, saying, "The banks can handle this within a matter of weeks."Many business associations called for the support to be provided quickly and unbureaucratically.
Easing of rules for banks
In order to give banks more leeway to lend, the supervisors gave the institutions additional relief: the so-called countercyclical capital buffer, which had been increased to 0.25 percent only last year, was abolished on 1. April to zero percent. This is to apply at least until the end of the year. ECB banking regulator also temporarily allows money houses to fall below targets for capital and liquidity buffers. The total capital relief for Germany's banks thus amounts to a good 120 billion euros. At the same time, central banks around the world are providing the financial sector with huge amounts of fresh liquidity.
There is no need to worry about the banks in Germany itself, emphasized the Financial Stability Committee, which is made up of representatives from the Federal Ministry of Finance, the Bundesbank and the financial supervisory authority Bafin: "The German banking system is well capitalized overall and there are no liquidity bottlenecks to be seen."
Emergency fund
In addition to loan programs for businesses, direct assistance is to be available primarily for freelancers and solo self-employed workers. A fund could help mini-companies in particular, where emergency loans from banks are no longer possible for business reasons, the BDI said. Scholz had announced that the federal government is working on an emergency fund. Fund with direct aid could be in place as early as this Thursday. This could cost billions more.