In the light of the current economic and financial crisis the German government proposed the ‘Securing jobs by strengthening growth’ programme. The German parliament adopted it on 4 December 2008. The programme complements the first part of the so-called rescue package for the German economy – the Financial Market Stabilisation Act and Financial Market Stabilisation Fund Regulation (see our briefing of October 2008).
The programme aims to support companies, employees and consumers. Most of its measures focus on consumers; examples are the suspension of the motor vehicle tax for new cars and subsidies to increase the energy efficiency of private houses. Even though companies and their employees will benefit indirectly from these measures, this briefing concentrates on measures with a direct effect on companies.
German measures to boost the economy
Some of the adopted measures are new and exclusively designed to cope with the current market turmoil; others already existed but are now continued with additional money. In general, these measures fall into three categories:
- financial support for companies;
- tax reductions; and
- increases in public infrastructure projects.
The German public bank KfW has established a special programme to support companies by facilitating access to capital. Its total volume amounts to €15bn. Under this programme KfW provides loans to companies investing in Germany if most of the company’s shares are in private hands and the group’s turnover typically does not exceed €500m per year. The loans are granted at market conditions by co-operating private banks. However, KfW grants the co-operating private banks an indemnification of up to 90 per cent of the loan to secure cases of default.
Moreover, KfW has increased the volumes of some of its existing programmes by a total of €1bn (the ERP innovation programme, ERP start-up fund and ERP energy efficiency programme). These provide financing for investments in innovative technologies and energysaving measures as well as venture capital for young German enterprises in the technology sector. However, they are restricted to small and medium-sized enterprises (SMEs).
Furthermore, the German federal government will increase the budget of the Common Task ‘Improvement of the regional economic structure’ by €200m. These funds are granted as direct payments to enterprises investing and creating jobs in economically underdeveloped areas. Municipalities can also apply for funds from the Common Task to improve their local infrastructure.
Reductions of taxes and social contributions
Companies will benefit from improved methods for calculating depreciation. For example, they can choose between linear and declining depreciation for movable assets bought or produced between 1 January 2008 and 31 December 2010. Moreover, a larger number of SMEs will be able to benefit from accelerated depreciations.
As another measure (although not in the framework of ‘Securing jobs by strengthening growth’), the German federal government has reduced the unemployment insurance contribution from 4.2 to 3.3 per cent. This has to be paid in equal parts by the employer and the employee.
The Federal Ministry of Transport, Building and Urban Affairs will provide an additional €2bn for the years 2009 and 2010, aiming at the fast implementation of construction and maintenance measures in road and rail infrastructure. These measures comprise in particular public private partnership (PPP) projects such as the second tranche of motorway maintenance and enlargement projects (the so-called ‘A-models’). Moreover, the Ministry is examining whether other infrastructure projects can be implemented on a PPP basis shortly.
KfW is adding €3bn to its programmes supporting economically underdeveloped regions. Under these programmes municipalities, public enterprises and social institutions may receive loans at advantageous conditions for the improvement of their local or social infrastructure – eg local roads, sewage systems, hospitals or schools.
The European perspective
At the same time as Germany and other countries are taking their own steps, the EU is also taking measures to strengthen the economy. The European Commission has prepared a recovery plan amounting to €200bn within both national budgets (approximately €170bn) and EU and European Investment Bank (EIB) budgets (approximately €30bn).
On the one hand, the recovery plan encourages national measures, such as investments in infrastructure and energy efficiency projects or supportive measures for innovative technologies and research and development activities. On the other hand, it envisages an increase in the volumes of European funds. For example, the EIB will provide an additional amount of €10bn for loans granted to SMEs. Moreover, it will increase its volume for loans to medium-sized enterprises by €1bn per year and will provide another €1bn to the European Investment Fund to support its mezzanine financing instruments.