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.”


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.


Coronavirus – The situation on Sunday: Boris Johnson released from hospital – EU wants to prevent Chinese takeovers with state holdings

The British prime minister retires to his country house after his release. The EU Commission calls on the member states to protect companies from takeovers. .

Strategy: Companies are demanding European industrial electricity prices

Berlin The EU Commission does not lack ambitious goals in its industrial strategy. Everything will be done to support companies on their way to climate neutrality and to strengthen their competitiveness, according to the paper presented on Tuesday. In practice, however, there is no trace of this. On the contrary: Well-known companies see their opportunities on the world markets dwindling in the face of rising electricity prices. The EU Commission is even working to further worsen conditions by tightening the state aid guidelines.

Remedial action would be possible from the company’s perspective. They propose a simple and permanently calculable solution: “A European industrial electricity price would open the door for the decarbonization of the EU raw materials industry and would have to be an elementary component of an EU industrial strategy,” said Rudolf Staudigl, CEO of Wacker chemistry AG, the Handelsblatt.

Roland Harings, CEO of Aurubis AG, similarly argues: “We need a globally competitive electricity price. A European industrial electricity price could guarantee this, ”Harings told the Handelsblatt. The EU industrial strategy does not mention such a politically set price that applies across the EU.

Wacker and Aurubis represent companies in energy-intensive industries. Wacker, a global chemical company with 14,500 employees and an annual turnover of five billion euros, is the global market leader in the production of polysilicon, an essential component of photovoltaic systems. Large quantities of electricity are required for production, it is the decisive cost factor. Competitors are Chinese companies with far lower electricity costs than Wacker in Germany.

China’s price advantage

In the polysilicon business, “competition with competitors in China has reached an intensity that threatens the existence of the company,” says Staudigl. “The price of electricity in Germany is at least twice as expensive as in western China.” That is why today, solar silicon produced in Europe can no longer be used to make money, even though Wacker is the global leader in quality and technology.


“Without the necessary planning and investment security through a globally competitive industrial electricity price, system-relevant raw materials such as polysilicon for the future technologies of photovoltaics and digitization will no longer be able to be produced competitively in Europe,” warns Staudigl. This leads to massive job and prosperity losses and harms the climate, since the global competitive regions produced with a significantly larger carbon footprint.

Aurubis, the world’s leading supplier of non-ferrous metals and the largest copper recycler in the world, faces similar problems. “Copper is traded all over the world at the same prices over which we as Aurubis have no influence. We cannot pass on any additional local costs to the customer, ”says Aurubis CEO Harings.

Legislators have a number of reliefs available for companies in energy-intensive industries that help to reduce energy costs. These include the special compensation scheme to reduce the levy according to the Renewable Energy Sources Act (EEG), relief on network charges or compensation for additional emissions-related costs for electricity.

The direct allocation of free emission certificates – for the steel industry, for example – also relieves companies. However, it only covers part of the required amount of certificates. For the next emissions trading period, which begins in 2021, the further reduction of the allocation is already decided. An additional tightening results from the announcement by the EU Commission to increase the EU-wide CO2 reduction target for 2030 from 40 to 50 to 55 percent.

Federal Ministry of Economics wants to thwart Vestager plans

Like a number of other companies, Aurubis is threatened by another burden: EU Competition Commissioner Margrethe Vestager announced at the end of 2019 that she wanted to significantly shorten the list of sectors that would receive compensation for the indirect costs of emissions trading. Aurubis would also be affected.

If this were to happen, it would have “a massive impact on our profitability and thus on our opportunities to invest in promising, CO2-saving technologies”, warns Harings. The Federal Ministry of Economics is trying to thwart Vestager’s plan. The search for allies is difficult. How the race will end is unclear.


With the goal proclaimed by the EU Commission to make Europe climate-neutral by 2050, the requirements for energy-intensive industry will continue to increase. The EU Commission is considering protecting companies with a CO2 limit tax. Critics object that the instrument poses a number of problems and could trigger trade disputes.

From the perspective of many companies, the European industrial electricity price would be the simpler solution. They receive support from the grand coalition. A European industrial electricity price “would strengthen the competitiveness of the energy-intensive industry in Europe and create planning security”, says Joachim Pfeiffer (CDU), spokesman for the Union’s economic policy.

Pfeiffer is certain that “it would definitely be the better alternative to CO2 limit compensation”. Union fraction vice Georg Nüßlein (CSU) appeals to the federal government to campaign in Brussels for the introduction of a European industrial electricity price. “If politics does not bring about a significant improvement in the cost situation of companies, deindustrialization will not be stopped,” said Nüßlein.

Experts also agree: A European industrial electricity price could “be an important signal for industry, which provides planning security for climate-secure investments”, said Matthias Buck of the Agora Energiewende think tank.

More: The EU Commission’s industrial strategy is full of good ideas. In practice, however, companies have to fight hard to get compensation for loads, says Handelsblatt author Klaus Stratmann.


How the EU Commission is fighting for competition policy

Margrethe Vestager and Thierry Breton
Picture: Getty

Should the European Union protect competition or individual industries? The EU Commission currently shares this question. So far, Germany has been more committed to the liberal market – but calls for more exceptions are being made.

I.Margrethe Vestager was a star at the EU Commission Jean-Claude Junckers. The Danish competition commissioner took on the powerful in business and politics from Jeff Bezos to Donald Trump and distinguished herself as an intrepid competition keeper. Like many of her predecessors, Vestager owed her good reputation to the fact that, as Commissioner for Competition, she was able to apply law immediately and was not subjected to political pressure. Juncker never questioned Vestager’s independence – he knew that if he politicized competition policy, the Commission itself would be at risk.

Werner Mussler

It has become more difficult for Vestager in the EU Commission Ursula von der Leyens. Paradoxically, this is mainly due to the fact that their responsibilities have grown. She is still the competition commissioner, but von der Leyen has also appointed her as “Executive Vice President” for digital matters. Since the head of the commission has made the design of digitization one of the main priorities of her term, Vestager is now both: apolitical head of the competition authority and political designer of digital change. In the absence of major decisions, it is not yet possible to say how this internal conflict of interest will affect their office.