interview with werner gatzer

Corona crisis: The largest assistance package in Germany’s history saves lives, jobs, companies now invests in the future too

The German government has put in place an assistance package of historic proportions. Here the interview with Werner Gatzer, State Secretary at the Federal Ministry of Finance in Germany

di Isabella Bufacchi

11' di lettura

This is the full text of the interview with Werner Gatzer, State Secretary at the Federal Ministry of Finance in Germany. He is in charge of Federal budget, Central administration and services, Privatisation, industrial holdings and federal real estate.

The interview took place before the announcement of further aid for the second partial lockdown starting on November 2.

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The coronavirus crisis presents Germany with unprecedented challenges. The German government has put in place an assistance package of historic proportions. Germany’s Presidency of the EU Council is aiming at turning this crisis into an opportunity to speed up modernisation and transformation to make Europe stronger. Is this what the BMF is doing in Germany too with three emergency budgets which, including State guarantees, amount to more than €1,500 billion, the largest as­sis­tance pack­age in Germany’s his­to­ry?

The German government's stimulus package aims to counteract the effects of the coronavirus crisis, both quickly and decisively. The package's main priorities are to protect people's health, to safeguard jobs and to support businesses. In addition, it aims to boost consumer confidence and stabilise demand. We have achieved these objectives to a large extent. Now we are placing a stronger focus on transforming the economy. The stimulus package includes a programme to invest in Germany's future.

This programme provides for about €50 billion in additional investment. Our priorities here will be to manage the challenges of climate change effectively and to boost long-term economic growth. In particular, we will be increasing our investment in sustainable mobility, the energy transition and digitalisation.

Public investment can provide a key impetus for enhancing the future viability of Germany's economy. And a stable German economy also benefits our European and international partners.

Can you explain in detail which are the Covid-19 crisis emergency measures taken in 2020 and 2021?

Our rescue package is comprised of extensive stabilisation and investment measures to protect businesses and workers during the immediate crisis while simultaneously making Germany fit for the future. The bulk of the funding – over €800 billion – is for federal and state guarantees that underpin our assistance programmes for businesses. These programmes are managed by KfW, which is Germany's government-owned promotional bank, and by a new Economic Stabilisation Fund. In addition, in 2020 and 2021, the federal government plans to make investments totalling over €120 billion to stabilise our economy and upgrade our infrastructure.

Over €40 billion in direct grants is being provided to small and medium-sized firms to help them stay in business. We have also allocated an additional €23 billion to our short-time work scheme, which stabilises the labour market and helps people keep their jobs during the crisis. We are also providing significant funding for the healthcare sector. This includes an €8.5 billion grant to the health fund and €3 billion to promote needed investments in hospitals.

The federal government is also allocating €4 billion to help state and local governments expand and upgrade their public health services and has provided €9 billion for the procurement of medical protective equipment. We are also contributing roughly €1 billion towards the development of a vaccine.

Soforthilfe, which is helicopter money (grants), was announced with a size of €50 bn. What amount has been used so far and is this instrument only to be used in 2020 or is it also part of the 2021 Budget?

The term “helicopter money” is misleading in this context. Payments of immediate assistance grants are contingent upon a key condition: to be eligible, businesses must be experiencing a cash flow shortage specifically caused by the pandemic. So far, we have paid out approximately €13 billion in immediate assistance to self-employed individuals and micro-entities. Additional funding has been provided through a follow-up temporary aid scheme. These direct grants have been extended to the end of 2020. Up to €25 billion can be provided for this.

KfW Covid loans have been granted special State guarantees on the top of the existing standard State guarantees: what is the overall amount of State guarantees on KfW loans and which is the size of the Covid-related KfW loans? KfW-Schnellkredit was announced in the second 2020 package. What is the size in terms of numbers and amounts of State guaranteed KfW loans granted so far this year? And will this emergency loan continue in 2021 and in 2022-2024? Is it true that the amount of State guarantees at KfW is potentially unlimited? Is it true that about 25% of these Covid-related guarantees (contingent liabilities) could turn into public debt?

The total volume of government guarantees for KfW loans is €150 billion. There is an additional €30 billion in trade credit insurance. There is heavy demand for pandemic-related KfW loans: As of 30 September, about 86,000 loans with a total volume of roughly €45.4 billion had been approved. Approximately 15,500 of these loans are quick loans, with a total volume of about €5 billion.

The relevant German legislation was notified by the European Commission and initially approved until 31 December 2020. At this time, we don't know if there will be an extension. Of course we have taken precautions, but we do not expect a large number of defaults, as your question implies.

Kurzarbeitergeld is not a new instrument but you increased its firepower: what is the amount of the Kurzarbeit Fund which was used to dampen the Labour-Covid-crisis?

Germany's short-time work scheme is a tried and tested benefit system that protects workers from unemployment during a crisis while simultaneously enabling firms to return quickly to pre-crisis performance levels once the crisis has passed. In contrast to previous crises, we are currently seeing many cases where working hours – and therefore wages – have fallen to zero, which makes the situation even more difficult for workers. For this reason, we have simplified access to the short-time work scheme and expanded the benefits it provides. Short-time work benefit is a statutory benefit that is paid out in the amount that is actually needed. The German government anticipates that this will total about €23 billion in 2020.

The new Stabilization fund (a tool similar to Soffin) was created for the Covid-crisis: has it been used in 2020? Where and how? Will it be used in 2021? What are the financial resources of this fund?

The Economic Stabilisation Fund is targeted towards companies in the real economy whose insolvency would have a significant adverse impact on the German economy or labour market. It provides measures to strengthen the capital base of companies and to help them overcome cash flow shortages. These measures are available to all sectors of the economy.

The Fund's instruments encompass guarantees totalling €400 billion to make it easier for companies to obtain refinancing on capital markets, €100 billion for recapitalisation measures to provide companies with the capital they need to remain solvent, and loans of up to €100 billion to refinance KfW special programmes.Since its establishment on 28 March 2020, the Fund has approved three measures totalling more than €6 billion.

Support has been provided to companies in the aviation and tourism industries. Just over 70 companies have expressed interest. Recapitalisation measures can be accessed until 30 June 2021, and guarantees until 31 December 2020. We do not yet know whether or to what extent companies will require assistance from the Fund in 2021.

The investment drive of your Covid-19 emergency measures is of great interest in Italy and Europe. In the past, in the pre-Covid era, Germany was criticized for not investing enough in structural productive State expenditure to enhance growth. Now in response to the coronavirus crisis, Germany moved from €37 bn investments in 2017 to €71.3 bn in 2020, €55.2 bn in 2021 and €48bn on an yearly basis in 2022-2024. Is thiscorrect? And is this increase in investments big enough, coming from what was considerered a very low level of public investments?

The German government began to increase public investment significantly already in 2018, and we are continuing to do so resolutely during the current crisis. We want to put Germany back on a path towards sustainable growth. A successful investment-oriented budget policy will help us get there. In our draft federal budget for 2021 and our fiscal plan for the years up to 2024, we are continuing our push for more investment. The federal government plans to make public investments totalling €48 billion per year from 2022 to 2024. This exceeds pre-crisis levels significantly. In addition, the federal government is boosting the fiscal capacity of local governments in order to give them more leeway to increase investment levels.

Public investment is an important factor in promoting economic growth. For one thing, it improves the performance and efficiency of infrastructure. For example, our stimulus package contains measures to expand and upgrade mobile phone networks and fibre optic broadband. In addition, public investment facilitates innovation by promoting innovative research in areas such as hydrogen technology and artificial intelligence. So as you can see, public investment plays a crucial role in making Germany fit for the future and helping us deal effectively with long-term economic challenges such as digitalisation and climate change adaptation.

May you tell me how are new investments in 2020 and 2021 divided by sectors such as infrastructure (roads, railways), digitalization, AI, R&D, communication 5G and 6G, health, education and apprenticeship?

The German government has responded decisively to the current crisis in order to mitigate the immediate effects of the pandemic, to protect prosperity and jobs, and to reinforce the foundations for sustainable, strong economic growth in Germany. This decisive response is reflected in the big increase in investment spending that you mentioned – federal government investment will rise to about €71.3 billion this year and €55.2 billion in 2021, up from about €38 billion in 2019.

In the remaining years covered by our current fiscal plan (up to 2024), we will maintain high annual investment levels of about €48 billion. In addition, many more billions of euros are being made available from various funds, particularly for digitalisation, the energy transition and climate protection.

This means that we are maintaining our investment momentum. Not all of the spending areas you mention in your question are categorised as investment expenditure in our budget. For this reason, it is not possible to make a generalised statement comparing pre-crisis spending levels with pandemic-related spending increases in these policy areas. Ultimately, what counts is the total amount of spending included in the measures we are taking.

Taken together, our stimulus package and our programme to invest in Germany's future provide for about €140 billion in spending on measures to fight the effects of the coronavirus pandemic in 2020 and 2021.

Germany entered the coronavirus crisis with one of the best health systems in Europe. How much are you investing in 2020 and 2021 to make your health system more resilient in this pandemic crisis?

Our federal budget contributes €14.5 billion per year to the spending incurred by the statutory health insurance system, which totalled about €239 billion in 2019. To help the healthcare system manage the effects of the Covid-19 pandemic, the federal government has already provided an additional grant of €3.5 billion to the statutory health insurance system this year, and will provide an additional grant of €5 billion in 2021.

In addition, the government earmarked €11.5 billion for payments to hospitals this year, in order to compensate for the extra costs caused by the pandemic.

Furthermore, in 2021, the federal government will invest €3 billion in a programme to future-proof hospitals with better and more modern equipment.

We have also launched a “public health services pact” that will run until 2026. The pact's objective is to build up structures – staffing, technical and digital – in the area of infectious disease control, both quickly and in a way that is capable of managing future challenges. The pact will have a total of €4 billion in federal funding at its disposal. We are also contributing €1 billion to help procure a national stockpile of protective equipment, and another €1 billion towards the development of a vaccine.

Why is defence spending one of the highest public expenditures in the 2021 budget?

The defence budget for 2021 is €46.8 billion, but this is far less than the largest departmental budget, which is €164 billion for labour and social affairs. Defence is traditionally one of the largest departmental budgets within the overall federal budget.

In recent years, Germany's international commitments, together with changes in the global security situation, have led to sharp increases in spending on the maintenance and procurement of military equipment.

The 2021 budget includes significant funding for staff (civilian and military) along with the necessary infrastructure.

Is the increase in public debt, due to the Covid crisis, bigger than the rise of public debt you experienced during the Great Financial Crisis 2008-2010? And are current huge savings from negative yields in new public debt issuance a game changer?

This year, the German government adopted two supplementary budgets in response to the coronavirus pandemic. The first supplementary budget increased new borrowing in fiscal year 2020 to €156 billion. The second supplementary budget increased this amount to €217.8 billion.

The government draft of the 2021 federal budget provides for €96.2 billion in net borrowing. This year's two supplementary budgets were adopted for the purpose of financing the costs of the pandemic. The second supplementary budget focuses in particular on financing for the stimulus/crisis management package, along with the comprehensive package of future-oriented investments described above.

Our draft federal budget for 2021 is also strongly affected by the pandemic. Next year's budget will have to finance many of the measures contained in our future-oriented investment package, and it will also have to take other crisis-related adverse effects into account – especially shortfalls in tax revenue.

According to current estimates, the general government debt-to-GDP ratio will increase to about 71% this year, and is expected to start declining again slightly already in 2021. During the global financial crisis of 2008-2010, Germany's general government debt-to-GDP ratio rose to 82.4%.

Low and negative yields on federal securities – both for the follow-up financing of maturing loans as well as for net new borrowing – are leading to a sharp reduction in interest payments compared with previous years. As a result, the increase is debt is not currently causing higher interest payments. However, we cannot simply assume that low interest rates are permanent. Future follow-up financing is likely to result in higher interest payments.

I read that only a part of this new debt exceeds the cap or the limit in your Constitution given by “Naturkatastrophen oder außergewöhnlichen Notsituationen”. For example the excess is quantified in €118.7 bn out of €217,8 bn in 2020 and €86 bn out of 96 bn in 2021. However the debt brake in your Constitution allows a deficit of only 0.35% of GDP and there is not a defined cap on new debt to face natural catastrophes. May you explain? Does BMF have to indicate a plan to go back to a balanced budget?

It is correct that the constitutional debt rule limits structural new borrowing to 0.35% of GDP. This is adjusted for the balance of financial transactions in the budget and for cyclical effects. This resulting amount is the permissible level of new borrowing under the debt rule. This figure is then compared with the expected amount of the federal government's new borrowing, which must also incorporate the financial balances of federal special funds.

To the extent that the amount of new borrowing permitted under the debt rule is exceeded, this constitutes a breach of the debt rule.

In the event of natural disasters or extraordinary emergencies that are beyond the government's control and that have a major adverse impact on public finances, the borrowing limit under the debt rule may be exceeded.

However, this requires a corresponding decision by Germany's parliament, the Bundestag. Any such decision by the Bundestag must be accompanied by a repayment plan. The coronavirus pandemic qualifies as an extraordinary emergency.

For this reason, when the Bundestag adopted each of the two supplementary budgets for 2020, it also adopted a corresponding decision permitting the federal government to exceed the limit on new borrowing under the debt rule. New borrowing in fiscal year 2020 is expected to total €217.8 billion. This exceeds the debt rule limit by €118.7 billion. A repayment plan was adopted for this latter amount, which is to be repaid during the period from fiscal year 2023 to fiscal year 2042.

The Bundestag will also have to adopt a similar decision and repayment plan for the new borrowing that exceeds the debt rule limit in 2021. The actions we are taking all comply with the constitutional debt rule, which shows that this rule also plays a constructive role during periods of crisis.

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