Sunday, 14. April 2024

Previous slide
Next slide

Covid-19 Economic Relief, Corona bonds … – Taxpayers will pay the Bill

I am going to say something very unpopular now. Unpopular because it is considered good and noble to help people in economic need. Anyone who refuses to do so is considered heartless and selfish.

Nevertheless, I will say it anyway:

1. Economic Relief for Businesses in financial Need

a) Financial assistance is given (only and freely) to those companies that are in economic difficulties due to Corona. But Corona has not even lasted two months yet. What must one think of a company that has no liquidity after only one or two months? Especially since payments are usually received with a time delay. So if you don’t earn anything in March, you probably didn’t make much in February or before.

Has the company really operated responsibly  in the past, or did such a company not already operate above or at least close to its liquidity limit in the months (and years) before Corona?

Or is the current liquidity crisis not rather due to the fact that the (considerable) profits of recent years were simply distributed to the shareholders?

Do we really have to feel sorry for the concert promoter who, for his part, had no problem selling us concert and festival tickets for well over €100 in the past? Or with the sporting goods manufacturer whose in-style products consume the bulk of a trainee’s salary? …

And what should we make of the car manufacturer that is paying out billions in dividends to its shareholders for 2019, including Arab oil sheikhs, only to have to resort to state aid in 2020, at least in the form of short-time work (Kurzarbeit), allegedly because of liquidity problems? Abusers of the assistance system at the highest level, one could say.

b) Those who are not experiencing liquidity problems will not receive state aid. So does this mean that those who have acted with foresight and caution in the past with regard to their spending behavior are now the ones who will be left behind?

In the current situation, some clients actually have the impression that they are the ones that will be left behind if they don’t join in the run on state aid. After all, it is so easy to get into (alleged) liquidity problems: Simply make a profit distribution for 2019, then the liquidity for 2020 is quickly used up. That’s the way you do it, money for nothing. …

Or ask a friendly customer to blame Corona for not placing the new order (which was not planned anyway). …

c) I warn against such manipulations. Such tricks are unfair and illegal, even though they may not be immediately exposed right away. From the point of view of justice, it would be very welcome if the emergency aid that has now been paid out were carefully checked, at least in retrospect, to see whether it was actually legitimately claimed.

d) Because we must not forget: The money for the liquidity assistance has to come from somewhere. In the end, we all pay the bill. Either directly through some kind of tax, contribution or levy. Or indirectly, by the state printing new money and thus driving up inflation. This will be at the expense of savers, and indeed all savers. Especially those who have limited themselves in the past in order to be prepared for whatever kind of crisis may come in the future.

2. Wages for Workers without Work

a) Those who cannot or must not work due to Corona, because they are in quarantine or because the company no longer has any orders, usually receive continued payment of wages or short-time compensation (Kurzarbeitergeld). Of course, this is a commendable social service.

b) But what are the doctors, nurses and other health care workers supposed to say? They have to do a lot of extra work because of Corona, run a much higher risk of infection and, in the end, don’t receive any more money than those who are allowed to stay at home because of Corona.

Is this really fair?

3. Corona bonds for weak Countries

a) With corona bonds, financially strong countries would help financially weak countries to obtain loans on more favorable terms on the capital market. Corona bonds are or would be a sign of European solidarity. Solidarity, for example, between financially strong Germany and its financially weaker European neighbors. Can we refuse to do this?

b) I think we can. Why is Germany so financially strong? Because many German workers produce very competitive economic goods for a relatively low salary, which German companies then sell successfully on the world market. That’s why Germany is the world’s export champion. So far so good.

The consequence is that you can buy German goods relatively cheap in other countries. If I remember correctly, there is a study according to which the standard of living of people in some financially weaker neighboring European countries is significantly higher than in this country. In many of our neighboring countries, more people live in their own homes, have better and healthier diets and, above all, have to work far less. Nevertheless, some of these countries are considered poor and Germany rich. We have (or had) full employment and our neighbors have high unemployment.

c) But do people in Germany therefore live better than in the other European countries? Probably that is partly the case. Especially if one considers it a sign of a good life to have work and high savings . Perhaps a large sum in our savings account actually makes us happier than a new 8 K OLED flatscreen tv in the living room or a new Porsche Panamera in the garage? …

4. A word of Caution

But maybe all this only works as long as hardworking people have the feeling that living beyond one’s means ultimately comes with a price, and that on the other hand it pays off to save your money and not to spend more than you can afford. Crises such as the current Corona pandemic harbor the danger that people will lose this conviction; particularly, when they see that other people who work less, spend more and live a less frugal life, make ends meet just as well or perhaps fare even better.

Dr. Wolfgang Gottwald
Rechtsanwalt/Attorney at Law

Attorney at Law

Leopoldstraße 51
80802 München

Tel.: 089/383 293-10
Fax: 089/383 293-13