False incentives, fraud, debt: the side effects of the corona crisis

The Chancellor is in top form in times of corona crisis. Angela Merkel explains complicated population doubling rates and reproductive numbers. But she also knows everyday things. “They have to be washed or ironed regularly, put in the oven or in the microwave,” Merkel explains how to care for respiratory masks. “Even if that sounds a bit housewife, so to speak.”

The omniscient state – embodied in the chancellor. The subjects are explained life down to the smallest detail. With this self-image, Merkel takes “measures that have never existed in our country before”. Fundamental rights are restricted, the economy is pushed to the brink and then supported with unprecedented aid.

One of Merkel’s closest confidants, Peter Altmaier, is more than enthusiastic. “An uncle who brings something is better than an aunt who plays the piano”, the Federal Minister of Economics remembers of his childhood.

And what is brought along! If you add up everything the federal government now wants to offer to combat the corona crisis, you get a gigantic sum of at least 1.2 trillion euros. No other country in the world has raised so much money in relation to its economic strength.

Germany has a full 35 percent, far more than the EU average or the USA. Federal finance minister Olaf Scholz did not understate what he promised a few weeks ago: “It is not spilled, but padding.”

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The increase in importance and power is unique. Never in the history of the Federal Republic has a government intervened so quickly and deeply in public life and thus in the economy. After the financial crisis, German government debt rose by 315 billion euros in one year. The value of the federal, state and local governments will be far exceeded in this crisis. “I am worried whether we will be able to return to normal economic policy,” says Lars Feld, Germany’s top economy.

The measures to protect health are understandable. But the question increasingly arises: what side effects do the multi-billion dollar rescue programs have? The free market is disturbed, competition is distorted, prices lose their signal strength.

“As much market as possible, as much state as necessary”, the famous words of former Federal Minister of Economics Karl Schiller lose their meaning every day.

There is a risk of higher prices, inefficient companies and loss of wealth. It is significant that more and more companies are turning to the Bundeskartellamt during the corona crisis in order to be exempted from cooperating with competitors. The new spirit of state economy speaks.

Spend as much as you can. The year 2020 will be disastrous. Kristalina Georgiewa (IMF chief)

Certainly, help for companies with no fault of their own must be provided. But with the flood of support funds, the risk of misallocation is high. Capital and labor are tied up in companies with below-average productivity, less investment and innovative strength.

A few weeks ago, after a parliamentary request from the FDP for possible support from zombie companies, the Federal Ministry of Finance had to admit that “necessary market processes of creative destruction are hindered”.

The concern is justified that the state is eating itself too deeply into the economy, throwing privacy and data protection partially overboard and that the influence on the market will not be reversed after the end of the crisis.

A look at history suggests little good. The federal government is still 25 years after the IPO Deutsche Telekom still the largest single shareholder.

Fundamentally, there is a problem that is known in the economy as moral hazard: companies and citizens behave irresponsibly or carelessly due to existing false incentives. The news of fraudsters sneaking up subsidies is increasing.

“The state is a lousy entrepreneur”

The appearances of Altmaier and Scholz are characterized by superlatives. At the federal press conference, they will be presenting the rescue packages worth billions to the public with great regularity. “This is the most comprehensive and effective guarantee that there has ever been in a crisis,” said Altmaier in mid-March. “This is the bazooka, we’ll look for small arms later,” the Federal Minister of Finance said at the appearance.

The small arms that have now been added are quite large-caliber. Scholz announced a debt-financed supplementary budget of 156 billion euros. This includes an emergency fund with a volume of 50 billion euros, which is aimed at the self-employed and small businesses with up to ten employees.

The federal guarantee for the state bank KfW is increased by up to 450 billion euros. And then there is an Economic Stabilization Fund (WSF) with a volume of 600 billion euros. The majority is earmarked for government guarantees to keep companies liquid.

100 billion euros are reserved for possible investments, i.e. partial nationalization of companies. The battered Lufthansa is already holding talks about state participation.

You can still hear Altmaier’s words: “The state is a lousy entrepreneur.” The Federal Minister of Economics at least dedicated the most beautiful hall in the ministry to Ludwig Erhard. But he is currently just as far away from Erhard’s mantra as the Germans are from summer leaves in Mallorca.

Minister of Economics Peter Altmaier (standing) and Minister of Finance Olaf Scholz (front)

The father of the “German economic miracle” throbbed to measure, he remembered sentences, the state should not be a player, but an arbitrator in the economy. Now the state is preparing to take over the entire football club.

No other industrial country is helping its economy with such large sums as the Federal Republic. This shows a new evaluation by the International Monetary Fund (IMF). He does not criticize Germany, on the contrary. “Spend as much as you can,” advises IMF chief Kristalina Georgiewa. The economic situation is too depressing.

The Council of Experts is now assuming that the economy will decline by more than 5.5 percent this year. This is the case that was previously treated as a worst-case scenario. The economic downturn would be worse than in the global financial crisis. 725,000 companies have registered financial difficulties and short-time work.

Including: hospitals. Health Minister Jens Spahn ordered them at the beginning of March to postpone all planned operations. For the hospital operator, this means severe revenue losses. More than a third of the intensive care beds are not occupied. With the Hospital Relief Act, the federal government created a regulation to compensate the clinics for the failures. But that’s far from enough.

This is the bazooka, we’ll look at small arms later. Olaf Scholz (Federal Minister of Finance)

Some private organizations have registered short-time work, including the Schön-Klinik group. The head of the German Hospital Society, Gerald Gaß, sees the time for a “careful, gradual resumption of regular care”.

Spahn also said last week that clinics could “gradually return to normal”. “We do not want to keep 40 percent of the intensive care ventilation beds in Germany permanently”, said the minister.

The pressure on the companies is huge, the need for help is great. This year alone, the federal government is raising 156 billion euros in new debt. The federal states are also preparing an extensive flood of money for pumps.

According to a survey by the Handelsblatt newspaper among the 16 state finance ministries, they are currently planning 65 billion euros in new debt to fight the crisis. In addition to the federal government’s huge € 1.2 trillion rescue package, the federal states are also helping their companies and the self-employed. Bavaria alone has launched a fund with 60 billion euros.

The IMF chief not only welcomes the gigantic aid package in Germany, the monetary fund also calls for thorough control. “Keep the bills,” said Georgiewa. Transparency and accountability should not be put off in the face of the crisis. Whether Germany is world champion in this discipline, doubts are increasing.

Risk zombie company

The financial crisis shaped a saying by the former head of central bank in Europe, Mario Draghi: “What ever it takes”. In this crisis, it becomes a “Whatever, take it!” Aid is mostly spent without checking, the money cannot be distributed quickly enough.

According to an overview by the Ministry of Finance and the Ministry of Economics, over 26 billion euros were applied for by KfW Hilfen. Almost 13,000 of the more than 13,200 applications were approved. In other words, almost anyone who wants help gets it, most likely companies that didn’t have a working business model before the pandemic.

This easily creates zombie companies that are only alive because of generous state aid. After all: With the large sums, the KfW steering committee seems to be examining it more closely. So far, around 8.5 billion euros have been approved. So it takes a little longer for the large-volume applications.

In contrast, the self-employed and small businesses with up to ten employees are suspiciously fast. So far, according to the overview of 1.65 million applications, around 1.1 million have been approved and more than nine billion euros paid out. These are not loans, but aid that does not have to be repaid.

“Speed ​​and thoroughness go hand in hand: it is carefully checked who receives the money,” Finance Minister Scholz promised. But is that true? North Rhine-Westphalia and Berlin were even recently forced to suspend immediate payments because large-scale fraudsters wanted to get to the pots.

There are also problems with honest entrepreneurs. In North Rhine-Westphalia, for example, the self-employed and small businesses are always granted the maximum amounts of EUR 9,000 and EUR 15,000 – regardless of need. This practice is not well understood in the Federal Ministry of Economics. Because a flat-rate payment of maximum amounts was actually not intended.

The aid should amount to up to 9,000 euros for companies with up to five employees and up to 15,000 euros for up to ten employees. The emphasis here is on the “up to”. According to the Ministry of Economic Affairs, the actual amount should be based on sales and operating expenses for the next three months. An entrepreneur with zero euros turnover and 1000 euros costs would be entitled to 3000 euros in emergency aid.

But these details were lost somewhere in the confusion between the federal states and the federal states. The up to 50 billion euros are provided by the federal government. Although federal money is at stake, it is up to the federal states how much they scrutinize companies. In Hamburg, for example, a liquidity check is required. Other countries are significantly less strict so that aid can flow as quickly as possible.

In Berlin, more than a billion euros were paid out to solo and small entrepreneurs within days. And the Berlin Senate also admits behind the scenes that surely there are also deadweight effects. Since no examination was carried out, almost everyone received 14,000 euros in a combination of federal and state funds. These include the self-employed, who normally have annual sales that are significantly lower, they say.

Some recipients are now voluntarily repaying the aid for fear of sanctions. But whether a subsequent thorough examination is possible to convince fraudsters is skeptical in financial management.

Dangerous false incentives

The economic nonsense, which is operated partly in the name of Corona, is great. Governments in the federal and state governments are increasingly creating the illusion that they can regulate everything with state trillions. And more and more, government intervention and expansion is creating false incentives in all areas of the economy, which can be revenged bitterly.

Take the housing market as an example: the Federal Minister of Justice, a woman from the SPD, wanted to protect the tenants. The result is a half-baked law that gets small landlords into trouble. The law was so badly made that solvent companies like Adidas or Deichmann used the gaps and simply suspended the rent payments. Only after a storm of indignation did Adidas row back.

Take the example of KfW loans: After the institutes hesitated to pass on the subsidized loans from the Staatsbank KfW to companies because they still had to bear ten percent of the default risk, the state assumed full liability. With the danger that house banks will now be able to provide loans to companies that have long been bankrupt.

The banks don’t care, they are released from any liability, but of course they still make good money from their business. The fool is the taxpayer who has to answer for the defaults.

Example of short-time work: Short-time work allowance is a tried and tested crisis instrument. The state replaces up to 67 percent of net wages. However, the SPD was not enough. In the coalition committee on Wednesday, she pushed for an increase to 80 percent.

It is the most comprehensive and effective guarantee that there has ever been in a crisis. Peter Altmaier (Federal Minister of Economics)

However, a general increase would have significant deadweight effects: Many companies are already increasing short-time benefits from their own resources. Apart from that, the short-time work allowance is not meant to secure the standard of living, but rather to ensure the survival of companies and thus avoid unemployment.

In other areas, the federal corona strategy is rather arbitrary. The craft complained that the vehicle registration offices were closed. There is also much discussion about opening shops up to the limit of 800 square meters. This border was communicated at least improperly and caused confusion and indignation among the shopkeepers.

Now a Hamburg administrative court has declared the 800 square meter rule to be illegal. The court could not understand why opening larger sales areas alone should attract more people to the city center. Necessary infection protection measures could be followed at least as well in larger stores as in smaller facilities.

Whimsical and impractical was initially the requirement that repair shops were allowed to remain open, but the sales rooms had to be closed. Many craftsmen wondered if they could lead the customers through the sales room into the workshop. Another detail from this series of undesirable side effects of the rescue policy.

The border closures, for example with the Czech Republic, mean that the bricklayers are missing in the construction industry and the harvest workers in agriculture from Romania. The state decides a lot, but the consequences are borne by the entrepreneurs and their employees.

The argument for the state’s rapid generosity in the crisis is: rather spend more now to prevent the economy from crashing and millions of jobs be lost than have to finance mass unemployment for a long time. This approach is absolutely correct. But it also remains true: somehow the state rescue billions have to be financed at least in the medium term if the next generations are not to be overwhelmed.

Currently this is done through the use of reserves and debts. Germany certainly has scope. The Federal Republic had just pushed the debt level to below 60 percent, thereby meeting the Maastricht criteria for the first time in many years in 2019. But that will be the last time for a long time.

As a result of the corona crisis, the federal government expects a general government deficit of 7.25 percent of gross domestic product (GDP) this year. The debt ratio as a share of all debts in GDP is estimated at 75.25 percent, as can be seen from the German Stability Program 2020.

“The projection is currently subject to very high levels of uncertainty,” says the current report. In other words, the debt level could be even higher. This mainly depends on how high the losses are that the federal government will incur from its guarantees and sureties.

Given the huge commitments, some in the grand coalition are trying to put the brakes on. “I don’t like the fact that we almost always get new suggestions every hour, what else can you do,” said Union leader Ralph Brinkhaus. “All of this must also be paid for.”

In a crisis, the state’s money is loose. Some sense their chance to finally implement long-held plans.

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Karstadt Kaufhof complains about opening branches in NRW

Kaufhof in Cologne

The owner Signa merged Karstadt and Kaufhof and has been running them under the common name Galeria Karstadt Kaufhof since March.

(Photo: picture alliance / dpa)

Dusseldorf The ailing department store giant Galeria Karstadt Kaufhof is taking legal action against the closure of its branches in the corona crisis. The group has filed a lawsuit against the Münster Higher Administrative Court against the fact that department stores in North Rhine-Westphalia are not allowed to open.

According to the court, the country has now been given the opportunity to comment. A decision could be made in the coming week. A group spokesman initially did not want to comment.

Galeria Karstadt Kaufhof with its 28,000 employees is particularly affected by the store closures. Except for food and drugstore departments, which are separately accessible, all houses must remain closed due to the corona crisis.

According to the company, the company therefore misses a turnover of around 80 million euros every week. If the closure lasts until the end of April, the loss of sales should have totaled half a billion euros.

The governments had announced that the shops would gradually reopen on Monday. However, in a first step, only shops with an area of ​​less than 800 square meters are allowed to open. The Karstadt and Kaufhof stores have an average sales area of ​​12,500 square meters.

However, the state of North Rhine-Westphalia has embarked on a special route: it also allows furniture stores, including those of the large Ikea chain, and baby specialty stores to be opened. Galeria is not covered by this regulation. Several retail chains and associations had already criticized that this would result in an arbitrary distortion of competition.

Another way out remains Galeria in North Rhine-Westphalia: The state government has already announced that it should not be possible in NRW to reduce the sales area to 800 square meters by barriers, so that it can at least partially open. Other federal states, such as Lower Saxony, had promised this.

Group struggles for survival

Due to its difficult situation, Galeria Karstadt Kaufhof had applied for self-administered protective shield proceedings in early April. The protective shield procedure is considered the preliminary stage of insolvency, follows the same rules and often leads to a regular insolvency procedure.

It is reserved for companies that are not yet insolvent, but are at risk of bankruptcy. Under the protective shield, they are safe from access by creditors for three months and should therefore have enough time to organize their finances.

As has now become known, the Signa holding company of the Austrian investor René Benko sells 17 properties from the ailing department store chain Galeria Karstadt Kaufhof. The buyers are funds from the financial investor Apollo EPF. According to the Bloomberg news agency, the purchase price is around 700 million euros. That is exactly the same amount that Benko claims to have invested in Galeria as an additional capital injection.

A Signa spokesman declined to comment on Friday. The transaction was already registered for review at the Federal Cartel Office at the end of March, and the competition authorities released the sale on Wednesday this week. Signa has been the sole owner of the troubled department store group Galeria Karstadt Kaufhof and numerous department store properties of the company since June 2019.

More: Return to normality: what the relaxation of the corona rules means for the trade

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Karstadt owner Benko sells 17 properties to funds

Dusseldorf The Signa-Holding des Austrian investor René Benko sells 17 properties from the ailing chain of department stores Galeria Karstadt Kaufhof. The buyers are funds from the financial investor Apollo EPF.

According to the Bloomberg news agency, the purchase price is around 700 million euros. A Signa spokesman declined to comment on Friday. The transaction was already registered with the Federal Cartel Office for review at the end of March. The competition keepers have released the sale.

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Proceedings against Sky and Dazn closed

Dhe case against the media companies Sky and Dazn on suspicion of collusion during the awarding of football broadcasting rights to the Champions League was closed on Wednesday by the Federal Cartel Office for “discretionary reasons”. It was about the contracts for the three seasons from 2018/19 to 2020/21.

Michael Ashelm

The president of the competition authority in Bonn, Andreas Mundt, spoke of an anti-trust behavior of the two stations, but then cited the movement in the market with new providers and the effects of the corona crisis on football as reasons why an intervention is currently under way would have been associated with particular uncertainties. No more specific explanations under competition law for the decision were given.

At the time, Sky had won the bidding process of the European Football Association (Uefa) and split the rights to the live broadcasts for the German market with Dazn. From an antitrust perspective, the question arose as to whether another party might have been disadvantaged through collusion or whether Uefa might have taken less. Now the Cartel Office writes that, in contrast to agreements in the run-up to the granting of rights, post-competition cooperation is permitted under certain circumstances.

At what time Sky and Dazn reached a sublicensing agreement is not listed. At that time it was said from Uefa circles that both companies had already appeared as a group of bidders during the tender. The Italian antitrust authorities recently punished companies in a similar problem that had entered into sublicensing agreements before the tender ended. In July 2018, the monopoly commission in Germany criticized in its main report that the rights allocation for the Champions League was critical from a competitive point of view – and made the Bundeskartellamt responsible.

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Cartel Office enables Tui to sell package tours

Tui

The Cartel Office approves Tui’s new insurance model. The final assessment by the Bafin is still pending.

Dusseldorf For Europe’s largest travel group Tui rescue comes into view. As the Bundeskartellamt announced on Tuesday, the holiday organizer from Hanover was given permission to set up a joint insurance fund to secure customer money with the competitor DER Touristik. Both groups want to bring 130 million euros in liquidity to him.

In order to reliably secure customer down payments, without the tour operators being allowed to accept no money for vacation packages, the financial regulator Bafin der Tui – as well as the Rewe subsidiary DER Touristik – had issued a final ultimatum by April 28.

After the bankruptcy of Thomas Cook, the Bafin reviewed the old model of the two groups, a mutual insurance company with the name of the German Travel Insurance Association for Mutuals (DRS VVaG), and judged it to be inadequate.

However, the first attempt at rectification failed. A consortium of reinsurers, who initially wanted to provide adequate “coverage” with the DRS, postponed their commitment after Tui stopped doing business with Corona in mid-March and applied for government aid.

Shortly thereafter, the two competitors agreed on a plan B. On March 27, they notified the Bundeskartellamt of their intention to provide the DRS, which until then had only had six million euros in capital, with enough liquidity to be able to use it as its own insurance .

The money now comes in part from a EUR 1.8 billion KfW loan that the state granted to Tui a few days ago via the house banks. Rewe also announced before Easter that it had increased its own credit lines by one billion euros with its house banks.

The final assessment of the new insurance model by Bafin is still pending. With the financial supervision, however, it was revealed that Plan B had already been agreed with Bafin prior to the application to the Federal Cartel Office.

More: Europe’s largest travel company clears the crucial hurdle for the KfW aid loan: the banks agree to the loan from the state development bank.

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Cartel office gives DFL the green light


Who will broadcast Bundesliga games in the future? The DFL may continue to market the rights to it.
Picture: dpa

The German Football League may continue to market media rights to the Bundesliga. In this way, the competition between the individual interested parties such as Sky, DAZN, Amazon and Co. should be promoted.

DThe Bundeskartellamt has given the German Football League (DFL) permission to market national media rights. It is about the DFL rights auction, which is actually scheduled for May and June, for the four seasons from the 2021/22 season.

Michael Ashelm

“It was important for us that not one bidder alone can exclusively acquire all live rights, who then faces the viewer as a monopolist,” said Andreas Mundt, President of the Authority. A single provider with exclusive rights would hardly have any incentives to improve the quality of reporting, to keep prices stable and to exploit the innovation potential, particularly of the Internet.

The Cartel Office indicates that it wants to promote competition between traditional TV channels (Sky) and streaming providers (such as DAZN, Telekom, Amazon). The DFL had recently confirmed that four packages were to be purchased for the rights to Bundesliga live games (Saturday afternoon, Saturday evening, Friday and Sunday and Saturday conference). However, due to the Corona crisis, it is uncertain whether the auction will take place in late May. It is about more than four billion euros.

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Cartel Office to check “50 + 1” rule in German football

Martin child

The entrepreneur had submitted an application to take over the majority of the voting judges at Hannover 96.


(Photo: dpa)

Munich The dispute over the influence of investors in the soccer Bundesliga escalates. The Presidium of the German Football League (DFL) unanimously dismissed the proposal by entrepreneur Martin Kind to take over the majority of the Bundesliga team Hannover 96 on Wednesday. The owner of a hearing aid chain did not meet the prerequisite for “significantly promoting” the association over at least 20 years.

The DFL now wants the Bundeskartellamt itself to check whether its so-called “50 + 1 rule” complies with antitrust laws. Child had threatened to go to court if his application was refused. “There has been an intense, public debate about the 50 + 1 rule in recent months. This step should bring clarity to everyone involved, ”said DFL President Reinhard Rauball.

The rule states that the majority of voting rights in a professional football club must lie with the club behind it. It was last eased in 2011. Since then, patrons who have supported a club on a large scale for at least 20 years have been able to acquire a majority stake.

According to the interpretation of the DFL, they must have invested at least as much money as the club’s largest individual sponsor. This allowed SAPFounder Dietmar Hopp took over TSG Hoffenheim in 2014, who had moved from the district league to the Bundesliga with his financial support. For company clubs like Bayer Leverkusen and von Volkswagen supported VfL Wolfsburg, there were already exceptions.

In view of the growing economic superiority of English and Spanish clubs, the DFL had recently thought out loud about opening the Bundesliga to investors. In March, a majority of the clubs in the 1st and 2nd Bundesliga refused to weaken the “50 + 1 rule” – contrary to what children had hoped for. The latter then renewed his application for a special permit.

Recently, some Bundesliga clubs had to let important players go because they cannot keep up in the bidding for transfer fees and salaries. That scratches the international sporting success as well as the attractiveness of the Bundesliga. In England and Spain, many clubs are mostly in the hands of financially strong investors or listed on the stock exchange. The soccer Bundesliga has been dominated by FC Bayern Munich for years.

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