Over 1,100 companies apply for state aid

Though Opel and Arcandor have dominated the headlines, over 1,100 German companies have asked the government for help weathering the current financial crisis, the Frankfurter Allgemeine Zeitung reported Sunday.

Published: 31 May 2009 12:36 CEST

Over 1,100 companies apply for state aid

Photo: DPA

Without citing sources, the newspaper reported 345 companies’ applications had been approved, totaling €640 million worth of loans which have flowed through the state-owned KfW bank. If all of the applications are approved, the government could have to finance up to €5 billion worth of loans, according to the FAZ.

Most of the 1,100 applications come from small and medium-sized companies. In addition, there are at least 20 applications from large companies for loan guarantees of approximately €7 billion. Examples include the car maker Porsche and tire maker Schaeffler, both of which are struggling to repay massive debts the two companies accumulated trying to buy rival firms.

The newspaper says the costs to rescue automaker Opel are not included in the estimates.

The cost estimates also only include expenditures by the federal government, though state governments have also intervened. The state of Hesse, for example, has offered loan guarantees since November 1.

“When politics mixes itself into the allocation of money, then the dam quickly breaks,” said Kurt Lauk, the president of the Christian Democrats’ economic council told the newspaper.

As a result of falling tax revenues and greater state spending, state debt is expected to reach a record €1.66 trillion by the end of the year, which will cost an additional €70 billion per year in interest payments alone.

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Output is expected to expand 0.3 percent this year, the economy ministry said, up from a prediction of 0.2 percent in February.

The slightly rosier picture comes after improvements in key indicators — from factory output to business activity — boosted hopes a recovery may be getting under way.

The German economy shrank slightly last year, hit by soaring inflation, a manufacturing slowdown and weakness in trading partners, and has acted as a major drag on the 20-nation eurozone.

But releasing its latest projections, the economy ministry said in a statement there were growing indications of a “turning point”.

“Signs of an economic upturn have increased significantly, especially in recent weeks,” Economy Minister Robert Habeck said at a press conference.

The ministry also cut its forecast for inflation this year to 2.4 percent, from a previous prediction of 2.8 percent, and sees the figure falling below two percent next year.

“The fall in inflation will lead to consumer demand — people have more money in their wallets again, and will spend this money,” said Habeck.

“So purchasing power is increasing, real wages are rising and this will contribute to a domestic economic recovery.”

Energy prices — which surged after Russia’s 2022 invasion of Ukraine — had also fallen and supply chain woes had eased, he added.

Several months ago there had been expectations of a strong rebound in 2024, with forecasts of growth above one percent, but these were dialled back at the start of the year as the economy continued to languish.

‘Germany has fallen behind’

But improving signs have fuelled hopes the lumbering economy — while not about to break into a sprint — may at least be getting back on its feet.

On Wednesday a closely-watched survey from the Ifo institute showed business sentiment rising for a third consecutive month in April, and more strongly than expected.

A key purchasing managers’ index survey this week showed that business activity in Germany had picked up.

And last week the central bank, the Bundesbank, forecast the economy would expand slightly in the first quarter, dodging a recession, after earlier predicting a contraction.

German Economics Minister Robert Habeck

Economics Minister Robert Habeck (Greens) presents the latest economic forecasts at a press conference in Berlin on Wednesday, April 24th. Photo: picture alliance/dpa | Michael Kappeler

Despite the economy’s improving prospects, growth of 0.3 percent is still slower than other developed economies and below past rates, and officials fret it is unlikely to pick up fast in the years ahead.

Habeck has repeatedly stressed solutions are needed for deep-rooted problems facing Germany, from an ageing population to labour shortages and a transition towards greener industries that is moving too slowly.

“Germany has fallen behind other countries in terms of competitiveness,” he said. “We still have a lot to do — we have to roll up our sleeves.”

Already facing turbulence from pandemic-related supply chain woes, the German economy’s problems deepened dramatically when Russia invaded Ukraine and slashed supplies of gas, hitting the country’s crucial manufacturers hard.

While the energy shock has faded, continued weakness in trading partners such as China, widespread strikes in recent months and higher eurozone interest rates have all prolonged the pain.

The European Central Bank has signalled it could start cutting borrowing costs in June, which would boost the eurozone.

But Habeck stressed that care was still needed as, despite the expectations of imminent easing, “tight monetary policy has not yet been lifted.”

In addition, disagreements in Chancellor Olaf Scholz’s three-party ruling coalition are hindering efforts to reignite growth, critics say.

This week the pro-business FDP party, a coalition partner, faced an angry backlash from Scholz’s SPD when it presented a 12-point plan for an “economic turnaround”, including deep cuts to state benefits.

Christian Lindner, the fiscally hawkish FDP finance minister, welcomed signs of “stabilisation” in the economic forecasts but stressed that projected medium-term growth was “too low to sustainably finance our state”.

“There are no arguments for postponing the economic turnaround,” he added.