Germany is mulling an additional aid program for small- and medium-sized companies worth 300 billion euros ($324 billion) as the government seeks to limit the economic fallout from the coronavirus pandemic.
The new loan guarantees would come on top of a barrage of measures to counter what Chancellor Angela Merkel has called the biggest challenge to the country since World War II, a person familiar with the plan said. The government has said that the economy might contract even more this year than the 5% drop caused by the sovereign-debt emergency in 2008 and 2009.
Merkel’s ruling coalition has already put in place a crisis-fighting package worth 1.1 billion euros to provide virus-hit companies with loans and guarantees as well as create a fund to buy stakes in stricken businesses.
The existing program only provides for an 80% to 90% loan guarantee and banks have been reluctant to take on new risk as the economy falters. Private lenders have thus pressed the government to expand the existing scheme by guaranteeing 100% of the loans. Under the additional plan, Germany is looking at fully guaranteeing loans for companies with between 11 and 249 employees, said the person, who asked not to be identified because the matter is private. A final decision hasn’t been taken and the plan could still change, the person added.
The German government is actively working together with the EU Commission to quickly improve the flow of credit in the country, an official at the Economy Ministry said. Allowing a 100% guarantee requires a clarification of the state aid rules of the European Union, the person added.
Finance Minister Olaf Scholz on Monday said Germany will seek flexibility on a case-by-case basis beyond the 90% guarantees normally permitted by the EU. The Finance Ministry declined to comment.
The German government has also been mulling a stimulus package to kick-start the economy once the coronavirus crisis subsides. Fnance Minister Scholz is planning a package worth 50 billion euros, German magazine Der Spiegel reported.
Scholz is aiming to take money from a federal asylum reserve to finance the stimulus package, the magazine reported. The money would be used to increase state investments while measures to promote private investments are also being discussed.