Economic devastation of Corona in Germany
The German economy has so far lost more than € 220 billion due to the government’s handling of the Corona pandemic. At the end of the crisis, it could even be around 400 billion euros. These values were calculated by the German Institute for Economic Research (DIW Berlin) for the newspaper “Welt am Sonntag”. The DIW assumes that the number of infections will decline again in the spring. If this does not happen, DIW President Marcel Fratzscher expects a “tsunami of bankruptcy”.
His institute compared actual and forecast growth to “potential growth” for the years 2020 to 2022. This expresses how much the economy would have grown without the pandemic, which is a measure that is largely overlooked in such comparisons.
The federal and state governments have so far compensated only a fraction of this damage. This becomes clear, for example, if one relates the amount of local damages of around ten billion euros in Berlin alone to a statement made by the investment bank IBB shortly before Christmas. According to this, the public institute responsible for aid payments had so far paid out “November aid” to just under 19,000 applicants – just under half of them were self-employed. The total payments in this program amounted to around 75 million euros, which is only 0.75% of that amount of damage believed to have been caused in Berlin alone.
With record levels of new debt, the state will not be able to undo all the damage. Other tools are needed, including state participation in businesses – if their owners so desire. The state of Berlin is currently defining the legal conditions. For example, the Senate departments for “Economic Affairs, Energy and Operations and Finance” announced on Sunday that they wanted to significantly expand the existing shareholdings of the Mittelständische Beteiligungsgesellschaften (MBGen) in cooperation with the federal government. Many are wary of what is tentatively seen as a “land grab” by the government. Seize state control over private companies to cover a disaster battered by the same state.
To justify itself, a joint statement from the Senate administrations said the effects of the resolutions to fight Corona infections would hit many businesses harder than expected. “In this context, the situation of companies’ equity will prove particularly difficult. This will become evident with the 2020 annual financial statements at the latest, he said.
“Small and medium-sized Berlin companies need more equity to secure their future, otherwise there is a risk of over-indebtedness without their being responsible,” said Economic Senator Ramona Pop (Greens). The offers of the Mittelständische Beteiligungsgesellschaften (SME investment companies) are in the right place and provide concrete help. Berlin and the federal government are happy to back this up with counter-guarantees. “
Finance Senator Matthias Kollatz (SPD) added that the federal and state governments have increased their funding for Mittelständische Beteiligungsgesellschaften. “It’s a good message.”
The Mittelständische Beteiligungsgesellschaften (MBGen) mainly offer equity in addition to the classic bank loan. For example, they temporarily help finance working capital. These can be combined with KfW quick loans. However, according to their own information, the companies do not influence the day-to-day operations of their owned businesses.
Concern is growing over the relatively weak support provided by the government which has devastated Europe’s strongest economy.