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Germany: Is €10 billion enough for lockdown-lite?

November 3, 2020

On the face of it, the relief offered now is a fraction of the €750 billion aid package around the first lockdown in March. For businesses and the public, does this mean the sequel won't be as good as the original?

Berchtesgaden street scene
Image: Peter Kneffel/dpa/picture-alliance

Germany entered a second partial lockdown on November 2 to try to stem the soaring cases of coronavirus ripping through the country. Dubbed lockdown-lite, the measures aren't as severe as the virtual shutdown of the economy that took place in March and April.

The impact on many businesses is still set to be wide reaching, particularly in the entertainment and leisure sector, as well as for self-employed workers. Many companies were tipped perilously close to bankruptcy by the pandemic's first wave.

Read moreGerman economy bounces back to beat expectations

Announcing the partial shutdown on Wednesday the previous week, German Chancellor Angela Merkel promised an additional €10 billion ($11.6 billion) in support for affected businesses. Firms with up to 50 workers, and the self-employed, can have up to 75% of their previous year's November turnover reimbursed by the government.

In her weekly video podcast over the weekend, she vowed that the aid would be distributed "quickly and in an unbureaucratic way."

All the same, the financial support is modest when compared to the unprecedented €750 billion financial aid package announced in March, although the majority of the initial response was earmarked to tackle the health emergency and to backstop the debts of, and if necessary take stakes in, Germany's industrial giants.

Prolonged curbs possible

Tobias Hentze, senior economist at the Cologne-based German Economic Institute, told DW that the new aid commitment will almost certainly need to be expanded.

"It is likely that this second lockdown will cause negative spillover effects to other sectors, such as retail, as people might stay at home even if they are generally allowed to go to shopping centers," he said.

The current partial lockdown is set to last until the end of November, which politicians hope will mean that Germans can spend Christmas in person, rather than on Zoom. But the new stay-at-home orders could be the final straw for many retailers, who rely on profits made in the build-up to the festive season to keep them afloat for the rest of the year.

Read more: Opinion: Pandemic shutdowns will affect German economy

The German retail association HDE thinks the new measures amount to a "de-facto" shutdown, as city centers will likely see a huge reduction in footfall due to more people working from home and the closure of bars and restaurants except for takeaways and deliveries, along with gyms and cinemas.

Urging the government to ensure the public knows that city centers are not responsible for the large-scale transmission of the virus, Stefan Genth, HDE's managing director warned that "retailers can only operate profitably if they have the appropriate footfall."

"If the [retail] stores are the only ones open — all other shops around them have to close and people stay at home — then traders are in a very difficult situation," he added.

Shoppers wear masks in city center Cologne
Many shops can remain open during Germany's partial second lockdown but retails expect a huge drop in customersImage: Ying Tang/NurPhoto/picture-alliance

Worryingly, HDE's Consumption Barometer, a litmus test of German consumer sentiment, is falling after rebounding for several months and could weaken further if Merkel announces stricter measures on November 16, after a review of the impact of the current curbs.

The cruel yule

Worse still, retailers have warned of a bloodbath if the second lockdown is extended into December, their most lucrative month. HDE says apparel retailers are in a particularly weak state, having used up their financial reserves during the first wave of closures.

Fortunately, the government is in a much better position to help, after including generous contingency plans in its initial aid package. More than €50 billion was kept in reserve for a lengthy shutdown and much of the package of loans and subsidies has not yet been fully utilized.

"There are still financial resources available; the budget for 2020 is not fully spent yet," Hentze told DW.

Companies can still avail themsleves of emergency aid, the state bank KfW is still issuing quick loans of up to €300,000 and the much-praised Kurzarbeit short-time work program, where the government pays the majority of wages to prevent workers being laid off, has already been extended until the end of 2021.

Bridging loans have been offered since July to offset losses from firms' fixed operational costs and these too have been extended.

The Finance Ministry says on its website that it expects some sectors will continue to operate with "considerable restrictions" in the coming months, and they are developing an additional program to help those in the culture and event management industries.

How long and who pays?

Even so, concerns are rising about how long even the German government — with its strong export-led economy — can continue to prop up businesses and workers so comprehensively. If the second lockdown is prolonged and curbs are widened, can retailers, restaurants, gyms and cinemas realistically be protected for several months into 2021, when their profits are just a distant memory?

"A big issue will be how the government proceeds in terms of public debt as well as rising/cutting taxes in the next months," said Hentze.

Read more: Coronavirus: How the German military helps fight the pandemic

The government was under enormous pressure before the pandemic to cut taxes after years of budget surpluses and a booming economy. The health crisis forced them to take on €217 billion in public debt and is expected to be loosened by a further €96 billion in 2021. Calls are growing louder for ministers to reveal how the emergency measures will be paid for.

Hentze noted that the center-left Social Democrats, one half of Germany's grand coalition, "seems to be in favor of higher taxes for wealthy people and companies." Merkel's center-right CDU/CSU alliance, on the other hand, "sees a chance to promote economic growth by tax incentives."

Already VAT (sales tax) has been cut to 16% from 19%, which is of little help to traditional retailers if consumers feel safer by shopping online.

Nik Martin Once, at a radio station where Nik worked, noone arrived to read the news, so he said: "I'll do it."