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Global Economy

State aid can pay off

For most people it is an astronomical sum: 127 billion euros. The state supported the German economy with so much money during the Corona crisis – in the form of grants that do not have to be repaid, but also in the form of loans, guarantees or participations. And now? Is the money simply gone, or does the state – and thus the taxpayers – ever see anything of it again?

The following picture is currently emerging: Very little of the grants that went to small and medium-sized companies right at the beginning of the pandemic will come back. The situation is different for loans and participations. There are increasing signs here that in many cases the state could even emerge from the crisis with a profit. Of the 127 billion euros, the larger part, namely 70 billion, is attributable to such repayable aid. The loans have been granted to companies of all sizes, but the state has only invested in a few large corporations.

Billions in profit with TUI shares?

Example TUI: The crisis-ridden travel group from Hanover had to be saved from bankruptcy with three aid packages – total sum: 4.3 billion euros. But now CEO Fritz Joussen sees light at the end of the tunnel: in April he wants to return the first 700 million euros in state aid. In addition, he sees an opportunity for the state to do good business. Because the rescue package enables him to convert 420 million euros in silent participation into TUI shares – for one euro each. The shares are currently worth more than three times as much. Joussen therefore expects that the state will sooner or later convert the contribution into shares. "That would be an enormous profit for the state," said Joussen. If the federal government were to convert the deposit at this point in time, it would earn around one billion euros. In addition, there is around 140 million euros in interest that TUI has paid for the loans so far.

There are still no concrete statements as to whether and when the federal government will do business with the TUI shares. "A decision will be made on a possible use of the option/conversion rights in due course," it says only vaguely from the Federal Ministry of Finance. In the case of TUI, the help could end up being positive for taxpayers – even if not all loans have been repaid by a long shot.

It is not unusual for states to benefit from their aid programs after a crisis, says Christian Rusche, senior economist at the Cologne Institute for Economic Research (IW). "It's not the case that the state always inevitably adds." For example, the USA made a lot of money from the banking crisis of 2008/2009 – through stock transactions and interest income.

Positive examples: TUI, Adidas, CureVac

Stefan Kooths, Vice President of the Kiel Institute for the World Economy, is critical of government interventions of this kind. The state as a shareholder in a company: This harbors the risk of exerting influence and also distorts competition. In addition, a return motive should not be the intention for state aid – but solely the general economic interest. If the state is already buying shares in a company, as may be the case in TUI, then it must sell them again as quickly as possible.

At least on this point, the federal government has already made itself clear: "There is no interest in a long-term involvement with TUI," said a spokesman for the Federal Ministry of Economics on request.

And what about other large companies that the federal government helped out in the Corona crisis? The state also did good business with Lufthansa – partly because the silent participation bore good interest. Sporting goods manufacturer Adidas is another positive example. The company took out only 500 million of the aid loan of three billion euros and paid it back with corresponding interest within a short period of time. According to Rusche, even the pharmaceutical company CureVac, which failed with its corona vaccine, still has a small gain for the state. He invested 300 million, the share is currently worth 500 million euros.

Although Curevac is a special case because the state did not intervene here due to a financial emergency. For Kooths, the state investment in this case is "completely wrong because it represents an unnecessary risk". It would have made more sense to provide research money that would not only have benefited Curevac.

The help doesn't always pay off

And things don't always turn out well for the state in the end. For example, it is unclear how the ailing department store chain Galeria (Karstadt, Kaufhof) or the insolvent MV Werften will continue. The state has invested many millions in both companies, and Galeria has just received a second loan of 220 million euros. "Whether the second government aid for Galeria Karstadt Kaufhof actually made sense is a matter of controversy," said Rusche.

In principle, he is less critical than Kooths of the way in which the state supported the economy during the crisis. "There was a need for action. You can argue about the design, you can always optimize it, but the fact remains that the state had to intervene and did so." Kooths, on the other hand, considers state holdings in large companies to be particularly problematic: "To put it simply: If the citizens would like to be involved, then they can buy shares and should not be forced to participate via the state."

Pay aid only under conditions

However, the two agree on two points. First: State aid is only justified if the company's business model is fundamentally sustainable and is only temporarily affected by the crisis. Second: With the 70 billion euros in repayable corona aid that the state has granted in the past two years, the risk is actually relatively low. Both assume that the money is not lost. "The failure rates are not going to be very high," predicts Kooths. Rusche goes one step further: "There may even be a small plus."

The bottom line is that this does not make the Corona crisis an advantageous business for the state and thus also for the taxpayers. But the good news is that by far not every euro from the aid packages is lost forever.

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