How Germany wants to help small businesses stay afloat

The ruling Social Democrats are concerned that rising energy costs could spur a wave of bankruptcies, particularly among small and medium-sized firms. That’s why they want a temporary suspension of insolvency requirements.

Published: 20 September 2022 14:36 CEST

How Germany wants to help small businesses stay afloat

An application to begin bankruptcy or insolvency proceedings in Germany. picture alliance/dpa/dpa-Zentralbild | Fernando Gutierrez-Juarez

German Chancellor Olaf Scholz’s party, the largest in the Bundestag, wants to temporarily suspend the requirement for businesses to file for insolvency, as upcoming winter and rising energy costs wreak havoc on both household and business budgets.

“It seems to me that temporary changes in insolvency law are urgently needed for us to get through the crisis together and preserve jobs,” SPD parliamentary group leader Dirk Wiese told the Rheinische Post in Düsseldorf.

Wiese says some businesses in Germany will already be feeling the crunch of rising costs, while still not being able to access any of the federal government’s relief programs.

The German Bundestag has passed around €100 billion in inflation relief packages in total, with the last one totalling €65 million. However, much of the money – including the promised one-off €300 energy payment or the €300 to pensioners – still hasn’t actually been paid out yet.

The SPD says it’s not fair for companies to have to declare insolvency now due to biting costs if government aid later could eventually help them stay afloat. That matters because some relief measures are not available to businesses that have already declared bankruptcy.

“We have to take responsibility here and give these companies a helping hand,” says Wiese.

A recent survey found that about 83 percent of Germans expect there to be job losses this winter due to rising costs and failing businesses.

The SPD parliamentary group has requested that Energy and Economy Minister Robert Habeck, Scholz’s Green Vice-Chancellor, put a proposed law together for suspending bankruptcy filings. They say they’re still waiting for a response from Habeck’s office.

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Intel’s delay

The US chip giant announced Monday it is postponing plans for its project in Germany for two years as it focuses more on the United States.

This is a blow to Berlin, which had pledged 10 billion euros ($11 billion) – a third of the cost – to build the production plant in the eastern city of Magdeburg.

While Intel’s own struggles are the immediate cause for the delay, it has also fuelled concerns that Germany is becoming less attractive as a place to do business.

In this year’s ranking of the most competitive economies by Swiss business school IMD, Germany slipped two spots to 24th, with taxes, bureaucracy and poor infrastructure cited as major handicaps.

Volkswagen stalls

Auto titan Volkswagen announced earlier this month it could take the unprecedented step of closing factories in Germany for the first time in its 87-year history.

Europe’s biggest carmaker is struggling with high costs, problems in the transition to electric vehicles, and fierce competition from local rivals in key market China.

Employees of German car maker Volkswagen (VW) protest at the start of a company’s general meeting in Wolfsburg, northern Germany, on September 4, 2024. Photo by Moritz Frankenberg / POOL / AFP

A week after VW’s shock announcement, BMW announced it was recalling 1.5 million vehicles due to problems with their brakes and downgraded its outlook for the year, also citing problems in China.

Steel storm

Efforts by Thyssenkrupp to spin off its loss-making steel division and get its business back on track ran into trouble last month when a host of senior executives quit in protest at the what they said was the unacceptable behaviour of the group’s CEO.

The row centres around plans to restructure the division, which operates Europe’s largest steelworks in Duisburg, western Germany.

The conglomerate wants to separate the steelmaking unit from its other activities, which include building submarines, as it faces higher manufacturing costs and competition from cheaper Asian steel.

It already announced that it plans to cut jobs in Duisburg and reduce production.

Firms face being gobbled up

Deutsche Bahn announced last week that logistics unit Schenker, traditionally one of its most profitable arms, is to be sold to Danish group DSV, with unions fearful it could lead to thousands of job losses in Germany.

Meanwhile Italian bank UniCredit is targeting a takeover of Commerzbank after building up a nine-percent stake in Germany’s second-biggest lender, a development that reportedly blindsided Berlin and has angered German unions.

Still some say such takeovers also highlight that German firms remain attractive, despite the woes of the broader economy.

Poor indicators

After starting the year on a positive note, recent surveys – from business morale to consumer confidence – have been on a downward trend, denting hopes of a strong rebound.

Some economic institutes have cut their forecasts, and now expect either stagnation or a slight recession for the whole year.

In its last official forecast in April, the economy ministry still expected growth of 0.3 percent this year, but it may downgrade that forecast when it updates the figure soon.

Commenting after a recent batch of negative data, ING economist Carsten Brzeski summed up Germany’s problems: “Years of stagnation, and underestimating technological trends and international competition do not come without consequences.”

By Sophie MAKRIS