Are the ministers now in the cockpit at KLM?

Prudent. Minister Wopke Hoekstra (Finance, CDA) used that fine word at Friday’s press conference in his answer to the question whether KLM pilots have at least 20 percent of their salary. should to hand in. For example, it is stated in the letter to parliament about the support plan for KLM. Or become the high earners of KLM alone asked to hand in at least 20 percent, as stated in the press release?

Hard agreements have been made about KLM’s cost base, Hoekstra said. “Something has to be done about that. KLM also recognizes and recognizes this. But for us it is prudent to keep a distance. This is something between the companies, unions and employee participation. We don’t want to co-manage. ”

Also read: Only coalition positive about support for KLM

The difference between asking for or demanding a pay sacrifice is more than a language issue. It says a lot about the influence that the Minister of Finance wants to exercise within the private company KLM. How much power does the State derive from the EUR 3.4 billion support plan, with 1 billion as a direct loan and 2.4 billion as state-guaranteed bank loans? Would Hoekstra still want to be in the cockpit to steer?

On some issues, such as wages and working conditions for staff, the cabinet leaves the real negotiations to the KLM management. However, ministers are intensively involved in other areas, such as monitoring the use of state aid. And then there is the theme of sustainability, where the ambition to steer seems very limited.

Terms of employment

The most significant part of the support plan is cost savings. The unions believe that Hoekstra goes too far in its ‘restructuring’ of KLM, with a demanded ‘reduction of impressionable costs’ of 15 percent. This unavoidably has consequences for the working conditions and the unions should not interfere with that, the unions think.

To stick to the ‘strongest shoulders’ for a while: the pilots union VNV is ‘surprised’ that the cabinet and KLM have already made agreements about staff cuts, without any input from the unions. From the VNV response: “This strict framework actually dictates the outcome of collective bargaining and the precise reduction of individual working conditions.” In fact, “The Dutch polder model, based on consensus between social partners, has been pushed aside.”

Other KLM unions also reacted on Friday to the significant savings that the government and KLM have agreed. These were “sharp-edged negotiations,” says one of the parties involved about the talks between the government and KLM.

Another person involved, also on a background basis, says the consequences of the financial requirements for KLM are far-reaching. For example, as long as the support program is running, bonuses are taboo. “For KLM top management, 40 to 60 percent of the salary consists of variable remuneration. Some have lost more than half of their income for the time being. ”

But KLM employees with less generous incomes must also prepare for a wage sacrifice, Hoekstra reports to the House. He uses a graduated scale: the higher the salary, the higher the percentage that employees are in danger of being cut. “Wages from modal are lower percentages, rising linearly to 20 percent.” The interpretation is up to the company and the unions, according to the minister.

The bottom line is that the Ministry of Finance has set a goal with regard to the terms of employment and leaves it to the employer and employee to fill in. From a financial perspective, this is a modest interference, from a unions perspective, this is a far-reaching intervention.

Durability

Then there are the requirements for sustainability. This is much less of an intervention. The Cabinet’s conditions for KLM in this area are best efforts obligations.

KLM must contribute to the ambition of CO2reduce emissions by 2030 to 2005 levels and halve by passenger-kilometer. KLM is also committed to 14 percent admixture of sustainable fuel in 2030. Now KLM is 0.18 percent biofuel. At the press conference, replacement of short-haul flights by the train was added.

These are objectives that the government has already formulated before, to which KLM has now explicitly committed itself. Minister Cora van Nieuwenhuizen (Infrastructure, VVD) acknowledges that the signature of the goals is the only new aspect of these conditions.

The announced reduction in the number of night flights seems more concrete, but in practice also appears to be far from implementation. The first step, from 32,000 to 29,000 night flights per year, is an existing goal. A further reduction to 25,000 night flights is linked to the opening of Lelystad Airport. No night flights are allowed there.

For example, a reduction in the number of night flights still seems a long way off. Local residents are diametrically opposed to KLM and Schiphol on this subject. Night flights are important to KLM: they form the link between the European and the intercontinental network.

Confidential advisor

In another subject, the Cabinet clearly opts for influence and direction. That is the supervision of the state aid that will be paid later.

The name says it all: there will be a new official, a ‘government state agent“. In other words: a confidential advisor who checks whether state aid for the ‘blue family’ is being spent lawfully and whether KLM complies with the conditions for the aid.

The function is new, but the rationale is as old as the first support actions for individual companies in the 1970s, such as for shipbuilding group RSV.

Someone must supervise the use of tax money. The company is accountable to the inspector, the inspector to the minister, and finally the minister to the House of Representatives.

Industry pope Joseph Molkenboer played that role in state aid in the 1970s. He was a senior official in the Ministry of Economic Affairs and often a supervisory director of a company that received support. Sometimes he was an observer at supervisory board meetings.

But it was not satisfactory. His role as a supervisory director was particularly controversial. How could he be obliged as a commissioner to serve the interests of the company, while as a supervisor on behalf of the government he had to put the state’s interests first?

In the next economic downturn, in 2008 and 2009, the government saved several banks. Some received temporary support, such as ING. Commissioners came again on behalf of the government. For example, they had to pay attention to the top rewards. They faced the same conflict of loyalty. Am I here for the taxpayer or for the company?

ING received support, other banks were even nationalized: ABN Amro, Fortis Nederland and SNS Reaal. The shares that the state bought in this way were managed by a new foundation, NLFI. No government commissioners here, but founding board members who, the book shows The state bank about ABN Amro, together with civil servants and successive ministers played the role of shareholder. Also confusing and cumbersome.

Of state agent must monitor the use of the aid (only for KLM, not for Air France or the holding company) and compliance with the conditions.

This confidential counselor will have to shape his or her role himself. The agent may join KLM Commissioners, Hoekstra said Friday. Neither KLM nor Air France-KLM is happy with the state agentinsiders say. The potter has a stick behind the door: KLM will receive the loan in installments. In case of default, the state agent can block the following payment to KLM, the Ministry of Finance confirms.

State guarantees

Hoekstra and Van Nieuwenhuizen are most enthusiastic about their incantation of a long-term fear. To understand that a little bit of history. When KLM merged with twice the size of Air France in 2003, the Dutch government was afraid of French power politics. That the group would direct passengers to Charles de Gaulle Airport in Paris. That Schiphol would then decline to a regional airport. A shrinkage scenario would wait for KLM. That is why agreements were made for eight years that Schiphol and Charles de Gaulle should both remain international hubs. The dual hub as a pillar of Air France-KLM.

These agreements were called “state guarantees”. The guarantees for Schiphol’s position were extended indefinitely in 2010. Air France-KLM did negotiate a nine-month notice period.

Fears that the group would once take the opportunity to belittle Schiphol (and KLM) arose when the Dutch-French tensions in the group became increasingly pressing. While KLM flourished partly due to strict cost control, Air France lost ground. At the KLM headquarters in Amstelveen, there were continuous attempts by ‘Paris’ to attract control, jobs and cash.

The unexpected purchase by the Netherlands of 14 percent of Air France-KLM shares in early 2019 was partly prompted by this fear. The cabinet wanted to use these shares to exert pressure to strengthen Schiphol’s position. The French were furious.

That is why Hoekstra and Van Nieuwenhuizen now celebrate the extended notice period of the state guarantees as a victory. From nine months to five years. Van Nieuwenhuizen spoke about ‘the most important strategic interest’. “Then, if we say a weird French government, we have five years to keep them from it.”

The question is, however, what the new notice period of the not very firm agreements is worth if a conflict ever breaks out. But in the short term, the meaning is concrete: the cabinet has saved KLM so that Schiphol’s position could also be secured.

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Only coalition positive about support for KLM

3.4 billion euros. KLM receives so much support from the Dutch cabinet to survive the corona crisis. This concerns 1 billion euros as a direct loan and 2.4 billion euros in guarantees on loans from three Dutch and eight foreign banks. The state guarantees a maximum of 90 percent of these bank loans. KLM pays an average of 6.75 percent interest for the government.

The cabinet does set conditions: KLM must reduce costs by 15 percent, operate more sustainably and reduce the burden for local residents. For example, the number of night flights should drop from 32,000 to 25,000 per year. Five questions about the aid and the conditions.

Also read: Are the ministers now in the cockpit at KLM?

1 What does the House of Representatives think of the package?

KLM’s rescue will not take place without permission from the House of Representatives. A debate is expected to take place next week. The House can reject the package or enforce adjustments.

Until now, MPs of the coalition have reacted mostly positive, but with critical comments. VVD member Roald van der Linde tweets that the rescue “offers thousands of aviation workers a perspective”. Eppo Bruins (ChristenUnie) calls the package on the phone a ‘fair deal’, partly because KLM is not allowed to pay dividends and bonuses. He does, however, criticize the ‘tying’ around the drop in night flights, which is linked to the opening of Lelystad airport.

Opposition member Suzanne Kröger of GroenLinks speaks of “dirty politics” around the night flights. Residents around Schiphol and Lelystad are “played off against each other”. The PvdA has “many questions”, tweets Henk Nijboer. “How much employment is structurally maintained with these agreements?”

2 Can the European Commission still be a nuisance?

The aid package is still subject to approval by the European Commission, which monitors illegal state aid within the European Union that can distort competition. The Dutch government has already had contact with Brussels to determine whether the support for KLM can pass. For example, in order to comply with state aid rules, the package states that KLM is required to repay credit guaranteed by the state as soon as its cash position permits. But formal Commission approval is yet to come – and it is not guaranteed.

The European Commission previously made demands on Lufthansa. The German competitor of KLM would have to give up landing rights at the airports of Frankfurt and Munich, as a condition for German state aid of 9 billion euros. Lufthansa’s supervisory board disagreed, after which the government in Berlin had to renegotiate with Brussels. After Brussels eased the requirements slightly, this week both the Supervisory Board and the Commission agreed to support Lufthansa.

3 Will the conditions lead to a lower CO2emissions?

That is very much the question. KLM will have climate conditions imposed by the cabinet, but they will not go further than last year’s Sustainable Aviation Agreement. It states that the CO2emissions per passenger by 2030 should be reduced by 50 percent from 2005 levels. By 2030, 14 percent of the kerosene used by KLM should also be sustainable. Minister Van Nieuwenhuizen. There comes a state agent, a confidential advisor who supervises the implementation of the agreements by KLM on behalf of the state. But whether he or she will emphasize the climate remains to be seen.

What is not included in the conditions for KLM: the cancellation of short flights – a requirement that Air France was imposed by the French state. In the French case, this concerns a ban on domestic flights for which there is an alternative by train with a travel time of less than 2.5 hours. In the letter from the cabinet, KLM’s removal of flights to nearby destinations such as Brussels and Düsseldorf is mentioned as an option, but not as a requirement.

The cabinet also does not require a minimum ticket price from KLM. Austrian Airlines may no longer offer tickets at a price lower than ticket taxes (on average 40 euros) from the Austrian government, which contributes to the rescue of that airline.

4 How do these interventions arrive at KLM staff?

Much of that 15 percent cost reduction must be delivered by staff, through tighter working conditions and lower wages. It is still unclear whether layoffs will also be made. The plan must have been worked out by KLM and the unions on 1 October.

Pilot union VNV understands the restructuring. What is less understood is that the cabinet and KLM have already made specific agreements about the level and distribution of the cutbacks. For example, it has been agreed that employees must hand in from modal, rising to minus 20 percent for three times modal. “With this strict framework, the outcome of a collective bargaining agreement actually becomes [..] dictated. ”

The Dutch Cabin Crew Association therefore expects a “hot summer”. Board member Chris van Elswijk: “Of course we will discuss temporary agreements, but we will not just say yes. KLM cannot simply unilaterally change the collective labor agreements. ” He thinks it is a pity that KLM, which had an excellent return before the crisis, is presented with such harsh conditions. “And if it goes well after that, will we get something back? I don’t think so. ”

Union FNV, which mainly represents ground staff, believes that the limit for the wage sacrifice should be raised, to one and a half modal. The union is also disappointed that the cabinet has not said anything about the number of flex workers at KLM who work short shifts and should always be available. “The government should have set conditions for that.”

5 Are ticket prices going up now?

KLM and the Cabinet have not made agreements about ticket prices, as has been done with the state support for Austrian Airlines. The Austrian government stipulated that tickets should cost at least 40 euros.

Apart from the support package, it is likely that flying will become more expensive in the long term due to the impact of the corona virus. Despite the support measures, there is a good chance that airlines will collapse, so that customers have less choice in flights. The enormous competition has led to cheap tickets in recent years.

Analysis support KLM page E6-7

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Only coalition positive about support for KLM

3.4 billion euros. KLM receives so much support from the Dutch cabinet to survive the corona crisis. This concerns 1 billion euros as a direct loan and 2.4 billion euros in guarantees on loans from three Dutch and eight foreign banks. The state guarantees a maximum of 90 percent of these bank loans. KLM pays an average of 6.75 percent interest for the government.

The cabinet does set conditions: KLM must reduce costs by 15 percent, operate more sustainably and reduce the burden for local residents. For example, the number of night flights should drop from 32,000 to 25,000 per year. Five questions about the aid and the conditions.

Also read: Are the ministers now in the cockpit at KLM?

1 What does the House of Representatives think of the package?

KLM’s rescue will not take place without permission from the House of Representatives. A debate is expected to take place next week. The House can reject the package or enforce adjustments.

Until now, MPs of the coalition have reacted mostly positive, but with critical comments. VVD member Roald van der Linde tweets that the rescue “offers thousands of aviation workers a perspective”. Eppo Bruins (ChristenUnie) calls the package on the phone a ‘fair deal’, partly because KLM is not allowed to pay dividends and bonuses. He does, however, criticize the ‘tying’ around the drop in night flights, which is linked to the opening of Lelystad airport.

Opposition member Suzanne Kröger of GroenLinks speaks of “dirty politics” around the night flights. Residents around Schiphol and Lelystad are “played off against each other”. The PvdA has “many questions”, tweets Henk Nijboer. “How much employment is structurally maintained with these agreements?”

2 Can the European Commission still be a nuisance?

The aid package is still subject to approval by the European Commission, which monitors illegal state aid within the European Union that can distort competition. The Dutch government has already had contact with Brussels to determine whether the support for KLM can pass. For example, in order to comply with state aid rules, the package states that KLM is required to repay credit guaranteed by the state as soon as its cash position permits. But formal Commission approval is yet to come – and it is not guaranteed.

The European Commission previously made demands on Lufthansa. The German competitor of KLM would have to give up landing rights at the airports of Frankfurt and Munich, as a condition for German state aid of 9 billion euros. Lufthansa’s supervisory board disagreed, after which the government in Berlin had to renegotiate with Brussels. After Brussels eased the requirements slightly, this week both the Supervisory Board and the Commission agreed to support Lufthansa.

3 Will the conditions lead to a lower CO2emissions?

That is very much the question. KLM will have climate conditions imposed by the cabinet, but they will not go further than last year’s Sustainable Aviation Agreement. It states that the CO2emissions per passenger by 2030 should be reduced by 50 percent from 2005 levels. By 2030, 14 percent of the kerosene used by KLM should also be sustainable. Minister Van Nieuwenhuizen. There comes a state agent, a confidential advisor who supervises the implementation of the agreements by KLM on behalf of the state. But whether he or she will emphasize the climate remains to be seen.

What is not included in the conditions for KLM: the cancellation of short flights – a requirement that Air France was imposed by the French state. In the French case, this concerns a ban on domestic flights for which there is an alternative by train with a travel time of less than 2.5 hours. In the letter from the cabinet, KLM’s removal of flights to nearby destinations such as Brussels and Düsseldorf is mentioned as an option, but not as a requirement.

The cabinet also does not require a minimum ticket price from KLM. Austrian Airlines may no longer offer tickets at a price lower than ticket taxes (on average 40 euros) from the Austrian government, which contributes to the rescue of that airline.

4 How do these interventions arrive at KLM staff?

Much of that 15 percent cost reduction must be delivered by staff, through tighter working conditions and lower wages. It is still unclear whether layoffs will also be made. The plan must have been worked out by KLM and the unions on 1 October.

Pilot union VNV understands the restructuring. What is less understood is that the cabinet and KLM have already made specific agreements about the level and distribution of the cutbacks. For example, it has been agreed that employees must hand in from modal, rising to minus 20 percent for three times modal. “With this strict framework, the outcome of a collective bargaining agreement actually becomes [..] dictated. ”

The Dutch Cabin Crew Association therefore expects a “hot summer”. Board member Chris van Elswijk: “Of course we will discuss temporary agreements, but we will not just say yes. KLM cannot simply unilaterally change the collective labor agreements. ” He thinks it is a pity that KLM, which had an excellent return before the crisis, is presented with such harsh conditions. “And if it goes well after that, will we get something back? I don’t think so. ”

Union FNV, which mainly represents ground staff, believes that the limit for the wage sacrifice should be raised, to one and a half modal. The union is also disappointed that the cabinet has not said anything about the number of flex workers at KLM who work short shifts and should always be available. “The government should have set conditions for that.”

5 Are ticket prices going up now?

KLM and the Cabinet have not made agreements about ticket prices, as has been done with the state support for Austrian Airlines. The Austrian government stipulated that tickets should cost at least 40 euros.

Apart from the support package, it is likely that flying will become more expensive in the long term due to the impact of the corona virus. Despite the support measures, there is a good chance that airlines will collapse, so that customers have less choice in flights. The enormous competition has led to cheap tickets in recent years.

Analysis support KLM page E6-7

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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.”

graphic

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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Economy warns of exaggeration in the fight against Corona

Dusseldorf The Chairman of the Council of Experts, Lars Feld, urges the Federal Government to take measures to fight the corona crisis. “Above all, what is currently being discussed is problematic. You get the impression that every industry wants specific support, ”Feld told the Handelsblatt.

The hospitality industry wants the reduced VAT rate that has now been decided. The auto industry is again asking for a scrappage premium, and retailing vouchers, says Feld. “You could go on almost any way – who doesn’t have one yet, who wants to do it again.”

“If you go this route, you will hardly be able to catch it afterwards in terms of fiscal policy,” warns the head of the Freiburg Walter Eucken Institute. This applies “also to social policy measures such as the increase in short-time work benefits or the extension of the duration of unemployment benefits”. “I’m more worried about whether we will be able to return to normal economic policy,” says Feld.

The economist also disapproves of the federal government’s policy on industrial policy: “If Corona is now used to quietly implement questionable industrial policy goals, I find that unacceptable.”

Specifically, it refers to the recent tightening of the Foreign Trade and Payments Act. “The goal of building a fortress Europe is definitely the wrong way to go,” said Feld. Germany in particular, as the largest economy, must speak out for openness. “We cannot leave the Dutch alone to stand up for a market economy policy,” he warns.

He expressly warns against the introduction of a property tax. “To talk about a property tax in this situation is insane. The best way to pay off the debt is with an intelligent growth strategy, ”said Feld.

Read the full interview here:

Mr. Feld, you are considered the nation’s regulatory conscience. The state experiences something of self-empowerment in corona times. What scares you more: the virus or the political measures against it?
“Fear” is the wrong expression in both respects. I know the medical problems abstractly, but I don’t feel any threat. Of course, this can change quickly if I experience illnesses in my personal environment. This is often the case. As far as the state measures in the fight against the crisis are concerned, I am not afraid either, I am more concerned that we will be able to return to normal economic policy.

The state intervenes massively in contract law, it relaxes bankruptcy law, it communitises risks. In your opinion, is that all still proportionate?
Overall, I think the aid package is proportionate. You can argue about individual measures, especially with tenancy law. However, one has to say that the state there has been massively interfering with freedom of contract for a long time: through the rent brake or the rent cover in Berlin, which is probably unconstitutional. I criticized that before Corona – and I’m also criticizing it now.

So you don’t see a new quality of state intervention?
But, above all, what is currently being discussed is problematic. One has the impression that each branch wants specific support. The hospitality industry wants the reduced VAT rate that has now been decided. The auto industry is again asking for a scrappage premium, and retailers are demanding consumer vouchers. This could be continued almost indefinitely: Who has not yet, who wants again?

If you go this route, you will hardly be able to catch it afterwards in terms of fiscal policy. Ultimately, this also applies to social policy measures such as raising short-time working benefits or extending the duration of unemployment benefits.

The current bailout package is well over a trillion euros, i.e. more than three times the federal budget – these are sums that recently seemed unthinkable. Will the state’s calculation work, so now to save jobs, will it cost what it wants? Otherwise, the state would have to pay for the millions of unemployed anyway …
Yes, the sums are big. However, many simply add up everything that is put in the shop window – loans, grants, guarantees and guarantees. You have to take into account that not everything has an impact on expenditure, loans are repaid and guarantees are not drawn. The decisive factor is whether the measures are targeted.

Where do you see the debt ratio in the medium term?
By the end of 2021, we will probably be back to around 80 percent of economic output, roughly the level we had at the end of the financial crisis.

Do you think politics and science still have an overview? When was it that the state had to keep thousands of companies alive – and probably for months?
I don’t think the state will be able to maintain this for months. It can mitigate the consequences, but it will not be able to save all companies and jobs. We will have bankruptcies. Ultimately, it’s about helping companies that have a viable business model over this cliff. It should not be forgotten that companies are in this situation because the state massively restricts our freedoms during the pandemic. If there were a claim for compensation from the state, the whole thing would be more expensive.

Who pays the bill in the end? There is already debate about balancing the burden …
There is, of course, this debate, but it is a harmful one, with a particular focus on the ideological interests of the parties. To talk about a wealth tax in this situation is insane. The best way to pay off your debt is to use a smart growth strategy.

What do you think of the fact that the private banks are now providing KfW loans with a volume of up to 800.000 euros no longer have to assume any liability, so get a 100 percent guarantee from the state?
If you bear in mind the Federal Government’s goal of mitigating corona-related defaults with liquidity aid, that makes perfect sense. Of course, it is cleaner from a regulatory perspective to take the banks at risk. But then the measure would not work. Even with a liability of only ten percent, banks are very hesitant to grant loans in this difficult situation. Of course, we cannot grant such KfW loans on a permanent basis.

We cannot leave the Dutch alone to stand up for a market economy policy.

But isn’t that a disguised bank bailout program?
I would not say that. It dissolves the risk aversion of privately liable bank executives. Ultimately, credit-based liquidity support is hardly an option for many companies currently affected, provided they would become excessively in debt.

Another instrument that is often mentioned is government participation. Will it happen?
I cannot imagine that we can do without state participation in certain industries – for example, with airlines. Until the Lufthansa back to pre-crisis levels, it may take a long time. The decisive factor is whether they are silent participations or whether the state wants to exercise control rights. I prefer the former because with a stock package it usually takes longer for the state to withdraw.

The bank bailouts during the financial crisis in the USA are always considered exemplary, although there were equity investments …
Yes, that’s right, but the state quickly withdrew there. The following applies: If the control function, then please use the exit scenario.

They probably refer to Commerzbank, where the state is still involved after more than ten years.
Yes, it would be even more serious with massive industrial holdings like we used to have.

Now there was a trend towards industrial policy even before the corona crisis. The economics minister tightened the foreign trade law – and added again during the corona crisis: are we experiencing a turnaround?
Unfortunately, there is a turnaround. If Corona is now being used to quietly push through questionable industrial policy goals, I find it unacceptable.

Now this policy is being carried out by the CDU-led Ministry of Economic Affairs. Are we threatened by French conditions?
The goal of building a fortress Europe is definitely the wrong way to go. Germany in particular, as the largest economy, must speak out for openness. We cannot leave the Dutch alone to stand up for a market economy policy.

Isn’t there a good reason to protect some industries – when it comes to security, for example in the case of the Chinese network supplier Huawei?
Of course, the state has to look when a state investor from China is investing in critical infrastructure. But now that doesn’t just apply to China. American investors are now being looked at just as critically. A systematic foreclosure strategy threatens. What is considered “safety-relevant” must therefore be clearly defined.

The law speaks of an “expected impairment” of public order or security. There seem to be no limits to arbitrariness, right?
The Ministry of Economy is now keeping everything open to prevent any takeovers. The whole thing is also enriched with a participation facility and the economic stabilization fund. It is a very unfortunate combination.

Even mouth protection and protective clothing are considered to be safety-relevant. They may be relevant to health, but they do not have to be produced in Germany. In this case, the state must create strategic reserves.

Back to the economic risks again. If the lockdown has such devastating consequences in Germany, what about countries like Spain and Italy that are already heavily indebted?
There is no way around these countries pursuing an expansionary fiscal policy and driving up debt levels. There is no alternative in the face of this great crisis.

Aid programs such as those in Germany cannot be afforded by these countries, which have been hit much harder by the corona crisis …
I wouldn’t say that in general. Spain and France have enough leeway with a debt ratio of 100 percent. I think 120 percent would be possible without them being in the focus of the financial markets.

Italy, which has a debt ratio of almost 140 percent, financial market players have long had their sights on them. Only thanks to the massive intervention of the ECB has interest rates dropped to a tolerable level again …
Yes, Italy is the real problem. The government debt there is moving towards Greek dimensions in terms of economic performance – and this is about a G7 country.

As far as the corona pandemic is concerned, Italy is not in debt to this crisis. Regulatory policy or not: Do you understand Italy’s prime minister, who vehemently demands the solidarity of the strong countries?
I differentiate between understanding and acceptance. I understand that Italy needs support given the many deaths. And I understand that the Italians are now doing everything they can to protect themselves against possible distortions in the financial markets with external help. What I cannot accept is Premier Conte’s blackmail strategy, which is unique in its sharpness.

Isn’t this attitude due to sheer misery?
That may be the case, but the extortionate approach could end up being counterproductive. The government cannot credibly threaten to exit the euro because the economy would collapse completely.

But the Italians know very well that an exit from Italy would very quickly result in a collapse of the monetary union, which the rest of Europe can hardly afford …
This may be. Nevertheless, Conte’s strategy is questionable because Italy would suffer much more. In Italy, therefore, there is rightly a debate as to whether the prime minister does not overdraw. Italy is well supplied with the funds that have been made available – i.e. the scarcely conditioned loans from the ESM rescue fund with the possibility for the ECB to buy unlimited government bonds (OMT).

I reject joint and several liability. That would be a fall for me.

Italy insists on corona bonds, i.e. the joint borrowing for this crisis. Wouldn’t that be an important symbolic signal for Europe’s cohesion?
No, I’m completely the politician of order. I reject joint and several liability. That would be a fall for me.

But isn’t it the more honest way in the end? A communitization of risks has long been taking place through the ECB’s balance sheet, an institution that is not at all legitimized for such a redistribution policy …
Again, joint and several liability between states is out of the question for me. Other forms of joint liability, such as joint liability or guarantees for debt, can be discussed.

Discussions about a fund at EU level – possibly parallel to the ESM – that is financed by bonds guaranteed by member states and from which transfers are paid – all of this is conceivable. The problem with joint and several liability: Here the creditor can pick out the most solvent country – and force it to be repaid.

The crisis could hit the emerging markets even more severely than Italy. We are obviously experiencing a crisis of a whole new dimension. Not only almost all industries are affected, but also all regions of the world – at the same time. Some already compare the economic consequences with the Great Depression in the 1930s. Do you think this is alarmist?
No, I don’t think it’s alarmist. There are parallels as to the dimension of the economic downturn; but not on the job market. In addition, the reasons are completely different. The current crisis cannot be compared with the Spanish flu either. At that time after the First World War, the economies were very weak.

The fact is: A crisis as we are now experiencing it is unique. It is not only the slump in the economy as a result of the lockdown, but also the interruption of the international supply chains.

How do you explain that the markets are still reacting almost moderately?
The markets are still assuming that the gigantic rescue packages will help to overcome the liquidity problems. Whether this will really be the case depends on the further development of the pandemic. I would therefore not rule out further slumps in the financial markets.

The Ifo Institute anticipates a 20 percent drop in GDP in the worst scenario. Do you think such a scenario is conceivable?
I’m not that pessimistic. The 20 percent of the Ifo Institute is an annual projection, not an annualized quarter. This means that the relatively robust first quarter is included, so that the economy would not get on its feet in the third and fourth quarters.

At the moment, almost all countries except Sweden are pursuing the same corona strategy: lockdown, bans on contacts and so on. There has never been an experiment like this. Could this strategy turn out to be a global mistake in the end?
Afterwards we’ll be smarter. Yes, there are voices that can be taken seriously and say that we unnecessarily stall the economy. Only: If we look at the infection curves and compare them with other flu waves, we see that the rise at Corona is much steeper. If we let it go, significantly more deaths would be unavoidable. So I think trying to flatten the curve so as not to overload the health system is the right strategy.

Finally, a personal question: It was not long ago that your colleague Peter Bofinger from Würzburg was the last Keynesian. But now conservative economists are also calling for massive government intervention. Ifo boss Clemens Fuest, for example, or IW boss Michael Hüther, who most recently spoke in favor of corona bonds. Do you sometimes feel like the last politician in the country?
Do not worry. There are still a large number of economists who think in terms of regulatory policy. In addition, I am just as pragmatic as my colleagues in this unique crisis that we are currently experiencing.

Mr. Feld, thank you very much for the interview.

More: EU summit: These are ideas for financing the EU reconstruction funds

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“The main problem was too rapid growth”

Munich After the pledge from government aid, the ailing car supplier feels Leoni solidly financed for the next few years. “We will make ends meet,” said restructuring director Hans-Joachim Ziems the Handelsblatt. Leoni had planned conservatively. “I think the volume is sufficient to be well financed into 2023.” Then Leoni will also be able to refinance and repay the loans with good operating figures.

Leoni had secured new loans in the amount of 330 million euros, for which the federal and state governments guarantee 90 percent. “The relief is of course huge,” said CEO Aldo Kamper. The scenarios considered another shutdown lasting several weeks. When asked if Leoni could hold out for months of closings, he said: “At some point, all funds will be used up, this applies to the entire industry.” At Leoni, one would certainly not be among the first to experience problems in the industry.

The Franconian wiring system specialist had already existed before the corona crisis. Last year sales decreased by five percent to 4.8 billion euros, the bottom line was a loss of 435 million euros. “The main problem was growing too quickly,” said Ziems. The organization has not kept pace with this. In addition, the growth projects were not profitable enough. “The management at that time was overwhelmed by the situation.”

In March, Leoni had reached an agreement with the banks on fresh liquidity aids, even before the corona crisis hit fully. An expert opinion confirmed the company’s ability to restructure. This enabled Leoni to demonstrate that the new problems were actually due to the corona pandemic. This made access to state aid easier. However, Kamper emphasized: “We still have a long, rocky road ahead of us.”

Ziems is convinced that some companies in the industry will still be in need. Medium-sized suppliers in particular, who are still geared towards conventional drive types and have not yet taken countermeasures, would now run into difficulties. “There will be some bankruptcies in the next few months, much more than it normally would have been.”

Read the complete interview here:

Mr. Kamper, 2019 was already a difficult year for Leoni. The situation then deteriorated dramatically with the corona crisis and you have now secured state aid. How big is your relief?
Kamper: The relief is huge, of course. We have had very eventful weeks. This is now an important step that will help us get through this crisis well. We were already on the right track in the recovery of the company, but this commitment again helps us to master the corona crisis.

What have the past few weeks been like?
Kamper: In mid-March we had agreed with the banks on a clear restructuring path before Corona. A reorganization report confirmed our reorganization ability and through-financing. It showed that we had initiated the right measures in the past few quarters with our “Value21” performance and strategy program. We had started to bring some calm back into the company. Unfortunately, the joy of it was only very short. A few days later, the corona crisis hit us with full force.

Aldo Kamper

Growth projects were not profitable enough.

(Photo: Leoni AG)

Was your existence threatened?
Kamper: It was a painful cut, so suddenly the business base was withdrawn. It was clear that the ability to finance our renovation concept was questionable. On the one hand. On the other hand, the restructuring report helped us: it demonstrated our general ability to restructure before the corona crisis and was a mandatory prerequisite for government aid. We still have a long, rocky road ahead of us. But the foundation is there for us to lead the company back into a solid future.

But the company wasn’t healthy before the crisis. How do you feel as a privately oriented entrepreneur when you have to ask for help from the state of all things?
Kamper: It is a state guarantee and not state funds. This is funding that we have to pay back in full and in full.

But asking the state for help is not an everyday tool.
Kamper: The corona crisis is a very unusual and challenging situation for all companies. There has never been anything like it. Please keep in mind: The demand collapsed practically overnight. Such a situation requires extraordinary resources.

How quickly would you have had to close the company without government aid?
Kamper: This is a question that the entire automotive industry has certainly dealt with, or is currently still doing. It is clear that the money will run out at some point when there is suddenly no longer any demand. This is a process that would not have spanned quarters across the industry, but probably only a few months. It was therefore important that the state reacted so quickly.

Mr. Ziems, how difficult were the discussions with all those involved who have now made the aid possible?
Ziems: We had most of the discussions with the representative of the guarantor. That was the auditing company PwC, which implements this for the Federal Republic of Germany. The main thing was to prove that Leoni is suitable for this type of help. The remediation report prepared just before helped us. We had the redevelopment ability in black and white, that was a direct landing. All we had to do was take the last step and prove on what basis new financing needs arise.

And then there was help?
Ziems: No, you also have to find banks that are willing to take part in the financing and take on their risk share. We quickly convinced a consortium consisting of the banks that generally finance us. A new loan agreement also had to be negotiated.

If you take a look back: you came from outside as an expert. What actually went wrong with Leoni before Corona?
Ziems: The main problem was too fast growth. The organization was not keeping pace. In the new order of magnitude, essential areas no longer functioned as they should have. In addition, the growth projects were not profitable enough. The management at that time was overwhelmed by the situation.

Mr. Kamper, you were brought in as a growth and technology specialist. Instead, you were mainly asked to clean up. Do you feel deceived?
Kamper: It was clear that Leoni needed professionalization after the growth phase. But how high it was, that actually surprised me. It turned out that growth created problems rather than increased profits. The hoped for economies of scale did not materialize.

Mr. Ziems, is the former CEO and today’s chief executive responsible for the problems?
Ziems: I have given up looking for personal culprits. I look ahead.

Mr. Kamper, you say that you now want to bring calm to the company. But how? It continues to burn at every nook and corner. Corona is raging, and your key customers are also in trouble. And the relationship between the big car manufacturers and the suppliers was considered very strained even before the crisis.
Kamper: I believe that the crisis offers new opportunities because everyone realizes that we need each other. The shutdown of production across all automobile manufacturers and supplier groups was largely uncoordinated. When starting up, we have to coordinate well between manufacturers and suppliers.

Do car manufacturers also help you directly, for example by making payments?
Kamper: At the moment it is particularly important to discuss how we can get back to production. We need enough lead time for this. We saw in China that this is basically possible. As an industry, we have successfully started up together again.

How long will you continue to stand still in Europe and the USA?
Kamper: We looked at different scenarios. These include scenarios that take into account another shutdown lasting several weeks. I would say that we are not overly optimistic about the future.

Wouldn’t you endure months of closings despite state aid?
Kamper: At some point, all funds are used up, this applies to the entire industry. But we will certainly not be the first to have problems. We have to look ahead and consider how we as the entire industry can start up slowly and in a coordinated manner.

Hans-Joachim Ziems

The renovation expert sees no major takeover risk for Leoni.

(Photo: WMP Eurocom)

Mr. Ziems, what is the concrete solution with the banks and the state?
Ziems: We have agreed 330 million euros in new funding with three banks. 90 percent of them are guaranteed by the federal government and the states, that is Bavaria, Lower Saxony and North Rhine-Westphalia. That is sufficient, we have tested it in several stress scenarios.

How long does the money last?
Ziems: We planned conservatively. I think the volume is sufficient to be well financed by 2023. At this point, we will also be able to refinance and repay the loans with positive operating figures.

How do you imagine the interaction between CEO and reorganizer?
Ziems: We have a group in front of us with almost 100,000 employees. Of course, the CEO has a variety of tasks, especially in the crisis situation: keeping calm is a huge challenge. We each have different interfaces that work very well together and harmonize. We have overall responsibility on the board of directors, exchange ideas intensively. I take care of operational and financial restructuring.

In such a situation, Mr. Kamper, is it primarily the external and nationally known restructuring expert Ziems that the banks trust?
Kamper: It is a team task. The banks know that only one team can tackle this major task.
Ziems: I absolutely agree with that. In such a phase and with such a task there is no boss like in a sole proprietorship. There is an overall responsibility, and not just legally.

What is the first duty for managers in troubled companies in general in such a crisis?
Ziems: In principle, securing liquidity is the main task for any company in a crisis. The situation is extremely dangerous. Suppliers suddenly want payment in advance. At the banks, you no longer have the friendly credit seller as your contact, but the tough negotiator who sees how he gets his money back. Anyone who doesn’t have transparent number communication has a huge problem.

Has confidence in Leoni been restored?
Ziems: The banks had trusted us again before Corona, which showed the agreement on the restructuring course. You also know that Leoni is a systemically important supplier who, precisely because of this position, can count on being supported by the manufacturers.

The capital market apparently does not believe in Leoni and systemic importance. Leoni was recently recognized by the German Association for the Protection of Securities DSW as the third largest capital shredder in Germany.
Ziems: This may be the case in the capital market and has different causes. The company’s own assumptions were overtaken several times by unpredictable events and then had to be corrected. Leoni has also worked on improving the transparency of internal financial systems in recent quarters. Getting a company back on track is a process. This process has improved and we have made important progress.

Is Leoni a takeover candidate? The company now has a market value of only around 200 million euros.
Ziems: This is an interesting topic that will not only apply to Leoni in the next one or two years. We have a lot of money in the capital market that is looking for investment opportunities. Many companies will now find themselves in dangerous waters and become interesting for hedge funds.

So Leoni too?
Ziems: We are a special case. The process that we have to go through to get into a sustainable stable situation is complex. It is difficult to understand this from the outside. Nobody buys that easily. In other words, the risk of a takeover cannot be ruled out, but not very great for Leoni.

Mr. Kamper, how do you intend to strategically develop the Group now? Before Corona, you had planned to spin off the cable business.
Kamper: The synergies between the cable and wiring systems business are actually manageable. At the same time, however, it is difficult to develop both areas equally. In this way, we want to deepen the added value in the on-board networks and also offer components for new technologies, such as for autonomous driving. On the other hand, the cable sector would also benefit from forward integration. Where we do not only offer pure cable, we have completely different margins. We are therefore still looking for a new home for the cable division, because the strategic consideration is still right. But it is also clear that we cannot achieve an attractive price in today’s environment.

However, you also lack the possible sales proceeds to develop the on-board network further.
Kamper: At the moment you have to reach for the ceiling. But we also have no acute strategic need to act on the electrical systems.

It all sounds very factual, but is it difficult to get a real strategic vision out of it?
Kamper: As I said, it is still our goal to concentrate on the wiring system area in the long term. However, we first have to do our homework properly and focus on this very acute and extraordinary situation. That is a priority at the moment. If we get this right now, both divisions will benefit for the time being. We have to wait for the right moment to sell. It would be foolish to waste the cable division now. The strenght is to be found in serenity.

But your customers demand permanent innovations that you have to pre-finance. How can that be done?
Ziems: At this point we have to make it clear that we are already very well positioned in technologically innovative areas. Leoni has won a high proportion of the electric mobility platforms. The point is that innovations should further supplement our wiring system business in the future. Our refurbishment also goes hand in hand with the fact that we can continually manage investments on our own.

Will the already troubled auto suppliers leave the market in the crisis? Or do the weak survive better now – because they get state aid?
Ziems: I believe that the development that started before Corona will accelerate. The switch to electric mobility is a huge challenge for everyone, Leoni is well positioned to do so. Medium-sized suppliers in particular, who are still geared towards conventional drive types and have not yet taken countermeasures, are experiencing difficulties. There will be some bankruptcies in the next few months – significantly more than it normally would have been.

Mr. Kamper, how is Corona generally changing the car world? Is globalization turning back a bit in the industry?
Kamper: The globalized supply chains have brought enormous efficiency and cost advantages. It can’t be turned back so easily. The corona crisis is also less of a supply problem. The supply chains have largely held. It is different if there is no demand, but that has nothing to do with globalization.

But isn’t it a warning signal when raw materials for medicines or cheap protective masks are not available because they are only produced in a few countries?
Kamper: You are right, you will have to take a closer look after the crisis. In the healthcare industry, additional costs will probably have to be accepted to ensure availability. You have learned that you should always have several suppliers, which certainly applies to the automotive industry. However, these will not have to be located in the home country in the future.

There is an intense discussion in business about how quickly public life has to be started up again in order to reduce economic damage. What is your position there?
Kamper: The decisive factor is not speed, but continuity. There must be no back and forth. A relapse would be devastating for the industry. Therefore, I can currently understand the measures.

Mr. Ziems, you are usually only working for a limited time in companies in need of restructuring. How long do you want to stay with Leoni?
Ziems: We are usually in one company for up to two years. We stay until we feel that our work is no longer necessary. In the case of Leoni, that means we’ll be here for another year. Then we are hopefully superfluous and practically do away with ourselves.

And then? Would you like to take over as CEO again in the long run?
Ziems: Definitely not. I had that at the beginning of my career. I don’t need that again.

Mr. Kamper, Mr. Ziems, thank you for the interview.

More: This is how companies get state aid.

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In short: State aid for AUA only under certain conditions – uncategorized

According to Kurz, as many Austrian jobs and locations as possible should be secured.


According to Kurz, as many Austrian jobs and locations as possible should be secured.
© APA / HELMUT FOHRINGER

Chancellor Sebastian Kurz rejects a “financial injection” for Lufthansa in Germany, as long as it does not benefit the Republic of Austria.

Chancellor Sebastian Kurz (ÖVP) on Saturday tied conditions to any state aid to AUA (Austrian Airlines).

The negotiations with the management of the Austrian Lufthansa subsidiary are about securing as many Austrian jobs and location as possible.

No financial injection for German Lufthansa without an advantage for the Republic

“What will not exist is a financial injection for Lufthansa, a German group, without an advantage for the Republic of Austria,” said Kurz in the Ö1 series “Visiting the Journal”. The Chancellor did not want to say whether that meant that state aid would be linked to a location guarantee, “because it is ongoing negotiations”.

In any case, the aim of the negotiations was “to secure jobs at AUA – as best as possible – and to further secure Austria as a location”. The airport and the airline are “relevant” for the latter, says Kurz: “But it’s all a question of the possibilities and the price.”

Airlines worldwide in negotiations for state aid

AUA boss Alexis von Hoensbroech had last
State guarantees or non-repayable aid for missed items
Broadened business volume. This year the AUA “will be a big one
Write loss and have a larger bridging loan that we have
had to lead back, “he had explained in an interview with the” press “.

All airlines in the world are currently talking to the respective states about aid, after all, an airline cannot stand very long on the ground. Many of the sums that the AUA could need from the state this year have been mentioned, around 800 million euros.

SPÖ reaffirms call for state participation

The SPÖ has reaffirmed its call for state participation in the Lufthansa subsidiary AUA. If large companies receive more than 100 million euros in state aid, the state should participate, said industry spokesman Rainer Wimmer. If the AUA comes back into the profit zone, the participation will benefit the republic, it is argued.

“If Chancellor Kurz talks about wanting to secure jobs and location, then more than guarantees are needed,” says Wimmer to statements by the Federal Chancellor of the Austrian People’s Party. The bank bailouts in 2009 had shown that “taxpayers had nothing of the billions in sales after the rescue”. “If taxpayers now save the big companies, they must also have some of the profits after the crisis,” said Wimmer.

Read more about coronavirus in our Special

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Dividend despite state aid – car companies are criticized

BMW headquarters

Despite short-time working and an extended production stop, the Munich-based automaker wants to stick to its planned dividend payment.


(Photo: Reuters)

Munich On BMW is reliable. While other Dax companies had to postpone their shareholders’ meetings as a result of the corona pandemic, BMW is holding its 100th general meeting on May 14, as planned. The car manufacturer from Munich wants to maintain continuity even in times of crisis.

As the invitation to the event, which the company sent out on Monday, shows, the owners are asked not to appear in person. You should attend the Annual General Meeting digitally via livestream. Health protection comes first.

The BMW shareholders’ meeting is therefore taking place virtually for the first time, i.e. without a physical presence. Otherwise, everything is as usual. The board of directors and the supervisory board also propose to distribute a total dividend of 1.64 billion euros to the shareholders. Because the vehicle manufacturer has applied for subsidized short-time work for a good 20,000 employees at the same time, the Bavarians stand just as much Daimler or VW in criticism.

“Short-time work allowance is state aid. Those who rely on state aid cannot simultaneously distribute profits to shareholders. That is the ugly face of capitalism. In these cases, I am therefore in favor of a general dividend freeze ”, Carsten Schneider tweeted, parliamentary manager of the SPD parliamentary group, last week.

Dietmar Bartsch, chairman of the Die Linke parliamentary group, recently called in the “Financial Times” to suspend bonus payments and dividend payments if German companies make use of short-time work or other state benefits in the crisis.

Profit sharing of BMW employees linked to dividends

Many companies have already canceled their planned dividend. The German Protection Association for Securities Ownership expects that even in the best case, the 160 listed companies in Dax, MDax and SDax will only distribute 44 million euros to their shareholders this year due to the corona crisis.

That would be 14 percent less than in the previous year. In the current situation, “securing liquidity has priority first,” says Eric Frère, director of the Institute for Strategic Finance at FOM University.

Nevertheless, there are very good reasons why BMW is sticking to the dividend. The profit sharing of the automaker’s employees is partly linked to the distribution to the shareholders, according to corporate circles. If the owners’ profit sharing is canceled, this automatically reduces the bonus for the employees.

In addition, dividends are per se past. The corporations share their shareholders in the economic success for the 2019 financial year. For 2020, the year in which the corona crisis actually has an impact, the distributions will in many cases be eliminated completely or shrink significantly. In addition, many German companies do not want to lose their reputation as reliable partners on the capital market.

This is doubly important, especially for corporations like Daimler. Unlike BMW or VW, the Stuttgart company has no protective anchor shareholder. Because Daimler’s share price has been falling for years, many investors see the final argument in the dividend as to why they are still involved in the Swabians.

Suspending the previously announced profit sharing in such a constellation should scare away large dividend funds, it is said in financial circles. The result: Daimler’s stock market value could drop even further and the group could finally become the takeover target.

More: How well are German companies prepared for the crisis?

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Scholz publishes billions of euros for the start-up scene

Finance Minister Olaf Scholz

The start-up scene receives another two billion euros in aid from the federal government – in addition to the decision already made to include larger start-ups with a rating of 50 million euros or more under the Corona liquidity umbrella.

(Photo: AFP)

Berlin, Hamburg Thomas Jarzombek (CDU), the digital representative of the federal government, was rather vague in the morning. In an online press conference, the start-up association switched the politicians on for a few warm words to an association survey that was to shake up: More than 90 percent of the start-ups surveyed fear sales in the corona crisis, 70 percent even fear for their existence . From Jarzombek’s words that the “end of the flag” had not yet been reached for state aid, it was not foreseeable how quickly the call for help should be answered.

Just over two hours later, Finance Minister Olaf Scholz (SPD) surprised even some of his officials who had remained in the Berlin Ministry with a statement in Munich about the Corona aid with an almost incidental announcement: the start-up scene is getting another two billion Help from the federal government – in addition to the decision already made to include larger start-ups under the Corona liquidity umbrella with a valuation of EUR 50 million or more.

With the two additional billions, Scholz is fulfilling some of the wishes that the German early-stage investors gathered in the start-up association had expressed. On the one hand, they fear that firmly scheduled follow-up investment rounds for their portfolio companies may fail to materialize because there are no longer any lenders.

Then founders who burn a lot of initial capital would have to give up. On the other hand, start-up financiers fear the loss of their own donors, i.e. those investors who have already committed to the venture capital funds but have not yet paid them in.

Scholz starts at both points. On the one hand, it fulfills the wish of the start-up association and the digital association Bitkom for a matching fund. The aim is to increase donor investments with funding. Existing public promotional funds such as KfW Capital and the European Investment Fund EIF are to receive additional money with which they can increase start-up investments by private venture capitalists. This is intended to increase the investment sum without the need for additional tests. KfW Capital is to coordinate this program.

Corona crisis speeds up implementation of an old idea

The state also wants to jump aside the venture capital fund should investors fail. Most recently, these had increasingly been financed by capital commitments from family entrepreneurs, who are often new to the venture capital asset class – and may now fail in the crisis. The Ministry of Finance does not see this danger in the short term, but in the medium term public donors such as the EIF should be able to intervene in such cases.

The aim is to build a functioning European secondary market for such fund shares, it said. In addition, the German government wants to obtain permission from the EU to support small start-ups and medium-sized companies with sales of up to EUR 75 million that have so far had no investor on board.

With the extensive projects, Scholz apparently prefers a part of a longer-considered program. The Federal Government has been planning a fund of funds of up to ten billion euros to support German start-up financiers since the end of 2019 – also to strengthen its importance to foreign investors. The corona crisis is now accelerating this last stalling idea.

Initially, the fund was only supposed to amount to one billion euros at the start. Now the new ad hoc program is twice as big – and comes on top of the other funding programs such as short-time working, which are also open to start-ups. CDU digital politician Tankred Schipanski sees the additional measures as an “important contribution to maintaining our start-up and innovation ecosystem”.

More: There should be no comprehensive comprehensive insurance for risk capital

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Corona Crisis: Who Is the State Helping?

Frankfurt It is a big promise that Federal Minister of Economics Peter Altmaier (CDU) and Federal Minister of Finance Olaf Scholz (SPD) recently made to all self-employed and entrepreneurs in Germany. “As far as possible, no company should be in need of existence as a result of the epidemic and no job should be lost,” they said as a motto. In the same breath, they announced that the state development bank KfW may issue unlimited liquidity aid.

However, it is not as easy as it sounds to get the state funds. Not every company and not every trader qualifies for every program. And for some, the necessary help has not yet been launched.

Further help will follow soon, but nothing is known about the details. However, the information is sufficient for a first overview.

What kind of help are planned?

At the federal level, the focus has so far been on unlimited liquidity support – i.e. loans – from the KfW state development bank. The first aid programs can already be called up, others will follow shortly.

In addition to the federal government, practically all of the federal states have launched aid. Almost everywhere, the funding institutions open existing programs for companies in need of corona or work on new liquidity aids.

The funds are often discounted. State guarantees also exist in most federal states. A federal state or its guarantee bank assumes part of the credit risk. This is to help companies get a loan if they cannot provide enough collateral.

Why could transfers be necessary?

However, loans alone will not be able to solve many problems, warns the Bundesverband der Deutschen Volks- und Raiffeisenbanken (BVR). In the current situation, “direct grants are required, which must be decided quickly”. This is the only way to prevent a bankruptcy wave soon rolling over “economically fundamentally viable companies”, especially in the areas of gastronomy, tourism and retail, as well as organizers of cultural and sports events.

Jochen Multhauf, Managing Director of the management consultancy MSM Mittelstandsfinanzierung, sees this in a similar way. “The state helps, but it does not help efficiently,” says Multhauf. The problem with KfW loans: Many small businesses could hardly build up cash reserves and would therefore not be able to repay the loans even after the corona crisis had been overcome.

Multhauf therefore demands compensation for the fact that the state was prevented from doing business for overriding reasons.

Are there any real grants?

Real transfer payments that do not have to be repaid at some point are rare. The federal government is working on an emergency fund of up to 40 billion euros, aimed at freelancers and small companies. Grants from 9,000 to 15,000 euros are under discussion for companies with up to ten employees.

In Bavaria there are emergency aids for companies with up to 250 employees, which, depending on the size of the company, amount to between 5,000 and 30,000 euros. In North Rhine-Westphalia, small businesses and start-ups can also apply for equity capital of up to EUR 75,000 directly from the state holding company from a micromezzanine fund – without providing collateral.

KfW headquarters

Unlimited funds, but not for everyone.

(Photo: KfW Photo Archive / Thorsten Futh)

Who is KfW’s aid aimed at?

Fundamentally, KfW’s credit programs and most state development institutes are aimed at all business people – large companies, medium-sized companies, sole proprietorships and freelancers. However, the prerequisite is that the economic problems can be traced back to the corona crisis and have not existed before. This is checked by the KfW and also the house banks.

Is there a right to help?

No. Each applicant is examined twice. Once from his house bank – which remains on part of the credit risk – and also from KfW itself. The chief executive of the private banking association BdB, Christian Ossig, has already made it clear that the banks are taking risks with these programs. “It is not a matter of passing on subsidies,” emphasized Ossig.

Although the state assumes 80 percent of the risk of loss, 20 percent remain with the house bank. Even if the federal government replenishes and takes over 90 percent, a risk of ten percent remains with the house bank. The banks would therefore have to examine the loans appropriately.

Even state guarantees usually do not fully hedge the bank’s default risk – if only to prevent banks from shifting all of their hopeless customers onto taxpayers.

What KfW help is already there?

The promotional bank has activated three of its promotional programs for certain corona cases: This applies to the “KfW Entrepreneur Loan”, which is aimed at established companies that have been on the market for at least five years, the “ERP Gründerkredit Universell” for younger companies and the “KfW Credit for growth ”for large companies.

With an entrepreneur loan, companies can receive working capital loans of up to 200 million euros through their house bank. The sales limit for the program was raised from 500 million to two billion euros. The state liability is 80 percent. The same general conditions apply to the ERP start-up loan for younger companies with regard to sales and liability.

The sales limits for the growth loan were also raised: from two to five billion euros. The state is only liable for up to 70 percent of this program. The maximum loan amount is one billion euros. The interest rates are not set by the KfW. The house bank determines the conditions – “customary in the market”.

Until now, these programs could only be used for investments, such as innovations or digitization. Because of the corona crisis, these programs are now also open to working capital loans.

Where is the problem?

The crux of the funding programs: They are aimed at companies with good credit ratings. “It’s about companies that house banks would easily give credit to in normal times,” explains KfW department head Ingo Schumann.

Handelsblatt Morning Briefing - Corona Spezial

It is about companies that would only get into trouble because their house bank acts more cautiously in times of crisis. They are companies where it is relatively clear that they can survive the loss of revenue from the corona crisis.

Is there help for wobbly candidates?

The details for the “Special Program 2020”, which is characterized by an “increased risk tolerance”, are still open. This means that it is also aimed at companies with weaker creditworthiness, whose survival is less secure after the corona crisis. But: The increased risk tolerance knows limits.

“For this program, too, only companies qualify for which there is a positive forecast for the future, for which it is therefore not assumed that they will become overindebted because of the corona crisis,” explains KfW department head Schumann.

The assumptions on which this forecast is to be based are still unclear. “We are familiar with crises and special programs. Making continuation forecasts for companies in pandemic times is new and it is new for everyone, ”KfW boss Günther Bräunig told his employees at the beginning of the week. KfW is not only negotiating this with the banks, but also with the European Commission on questions of state aid law.

How long is the processing time for applications?

BdB general manager Ossig assumes that the banks can process applications within a week. KfW has accelerated its processes, at least for smaller companies. With amounts of up to three million euros, it does not undertake its own risk assessment and relies on that of the house bank. With sums between three and ten million euros, it carries out an accelerated risk assessment.

Assistance: Jens Münchrath

More: Comment: The federal government’s Corona aid is a strong signal

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