Germany unveils €17.5-billion plan to fight credit crunch

Germany unveils €17.5-billion plan to fight credit crunch
Economy Minister Karl-Theodor zu Guttenberg gets things rolling again. Photo:DPA
Germany on Tuesday unveiled a €17.5-billion ($25-billion) plan to fight lingering credit crunch problems in Europe's largest economy by lending directly to banks and bolstering insurers.

The package is part of a larger €115-billion fund designed to unlock credit in the economy in a bid to get business rolling again. But it has enjoyed only limited success so far.

Presenting the latest plan, Economy Minister Karl-Theodor zu Guttenberg said it was aimed at Germany’s famous Mittelstand – the small and medium-sized firms that make up the backbone of the economy.

“We want to ensure that small and medium-sized companies in particular can gain access to enough credit, even in economically difficult times, to carry out important projects,” he said in a statement.

The plan, which does not involve new money injected by the state, consists of two parts.

A pot of €10 billion has been laid aside to be lent to the state-backed development bank KfW, so it can in turn lend to businesses. A further €7.5 billion will be made available as export guarantees to encourage firms to sell abroad and bolster companies that insure exporters against defaults, the ministry said.

Additional details still need to be worked out, however, and the scheme will not be definitively put in place until October or November this year, the ministry said.

Business groups have warned that a continued credit crunch in Germany could throttle a promising uptick in activity that saw the economy recover in the second quarter of the year from its worst recession in over 60 years.

“Politicians must arm themselves for the situation to worsen,” the director-general of German employers’ group, Werner Schappauf, the BDI, told Handelsblatt.

“The first tender green shoots of recovery could quickly dry up if companies find themselves without liquidity,” he said.

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