Financing in the Crisis: “Bumpers” and “Protective Shields” instead of “Bazooka”

No sooner had the (economic) waves calmed down at least a little after the Corona pandemic than Russian troops marched into Ukraine. Not only because of this war, but also because of further Corona-related delays in the trade with China (here, in German), the supply bottlenecks have not – as hoped – eased, but in some cases even intensified (here, in German). Rising inflation (here, in German) is doing the rest to keep growth expectations for the German economy from skyrocketing (see here for current developments). And indeed, there are more and more voices warning of a liquidity squeeze for the German industry in the event of a recession (see only here, in German). Accordingly, the eyes of market participants are once again directed expectantly towards the government, but it is currently offering only slender fare:

“Bumpers” and “Protective Shields” instead of “Bazooka”

While the then Ministers Scholz (Finance) and Altmaier (Economy) pulled out the now famous “bazooka” at the beginning of the Corona pandemic and supported the German economy with aid packages of hitherto unimagined dimensions (see here, in German), the current ministers Lindner (Finance) and Habeck (Economy) were much more defensive shortly before Easter and described the package of measures for companies that got into difficulties as a result of the Ukraine war as either a “bumpers” (here) or a “protective shield” (here). In fact, both ministers stressed that the aid package is intended to cushion hardship, but “not to dissolve market forces“. In addition to liquidity assistance (loans and guarantees, see below), “complementary, precautionary measures” are to be granted, which may include subsidies for high energy costs for companies, loan guarantees for the energy industry and, in individual cases, equity assistance. The first two programmes have been ready for launch since the beginning of May:

KfW Special Loan Programme UBR 2022

This promotional programme provides promotional loans for medium-sized and large enterprises and freelancers affected by the war in Ukraine and the sanctions. Both investment and working capital costs are covered, as well as costs for takeovers and participations. The transaction is handled by the house bank, with KfW bearing 80% of the default risk (see here for more details, in German).

Guarantee programmes

The respective Federal-Länder guarantee programmes already introduced during the Corona pandemic are being extended to include the enterprises affected by the war in Ukraine. Applications are possible since 29 April 2022 (see examples at the site of the Thüringer Aufbaubank, here, in German).

The remaining programmes are to be completed by 1 June 2022.

In terms of funding, Corona is not over yet – until the end of June 2022

The governing coalition has extended the various Corona economic aid programmes until the end of June 2022 without much fuss (see more here). Also, the regulations for receiving short-time work benefits (“Kurzarbeitergeld”) were extended until the end of June 2022 (here, in German). It also appears that the federal and state governments are currently extending the deadlines for repaying Corona aid. Last year, Economics Minister Habeck had already called for such a regulations (here, in German) and the Land Northrhine-Westphalia has indeed extended the repayment deadline for emergency aid to 30 June 2023 (here, in German).

Conclusion: Taking a glimpse at the share of Germany’s GDP due to economic relations with Russia (see here, in German), especially with regard to the export volume of German companies to Russia, the reluctance of the federal and state governments to launch new aid programmes is quite understandable. And energy-intensive or energy-producing sectors, which are particularly hard hit by the price increases for oil and gas as a result of the war, are also to receive disproportionate support according to the will of the coalition partners. However, drilling down further into the economic data (here) and looking at the development in certain sectors, such as the automotive industry (here, in German), leads to the conclusion that mere “bumpers” might not be sufficient to avoid a further crisis in the German economy.

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