German government to guarantee 100 percent of loans to smaller firms in coronavirus aid package

German government to guarantee 100 percent of loans to smaller firms in coronavirus aid package
A cinema in Berlin with a sign that reads: 'we will be back'. Photo: DPA
Germany will guarantee 100 percent of loans made by banks to small- and medium-sized firms, sources told AFP Monday, in an extension to the €1.1-trillion coronavirus crisis package in Europe's top economy.

The federal government will stand fully behind €500,000 ($540,000) of lending to companies with up to 50 employees and €800,000 for larger ones, upping its guarantee level from a previous 80 percent for large firms or 90 percent for smaller ones.

Berlin's economic aid so far totals over €1.1 trillion, the Finance Ministry said in an answer to an opposition parliamentary question seen by AFP Monday.

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Ministers have agreed a €600-billion “economic stabilisation fund” offering €400 billion of guarantees for companies' debts, 100 billion to lend directly to or buy stakes in troubled firms, and 100 billion euros to fund state investment bank KfW.

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Meanwhile the amount of company borrowing KfW can guarantee has been boosted by €357 billion, for a total of €822 billion.

To keep their liquidity flowing, companies will also be able to delay tax payments.

The government says it will offer €50 billion of support for small and one-man-band companies, like photographers, musicians or carers.

Depending on the number of employees, individual companies will receive up to €15,000 each to keep the lights on over a period of three months.

Meanwhile freelancers applying for unemployment benefit will not be forced to seek new work.

Germany has also eased access to a programme that tops up workers' pay with government cash when their hours are slashed.

The scheme, known as Kurzarbeit, is widely credited with saving large numbers of jobs during the financial crisis of 2008-9.

Berlin expects more than two million people to work shorter hours in the coronavirus crisis, far outstripping the peak seen over a decade ago.

To cover the costs, the federal labour agency (BA) will start eating into its massive cash reserves of €26 billion.

With €156 billion in new borrowing to fund the payouts and extra health spending, the government has been forced to suspend a “debt brake” added to the constitution at the height of the financial crisis in 2009.

A further €82.2 billion of measures have been announced by Germany's federal states and municipal governments, as well as €63.2 billion in guarantees.

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