The German government is responding to the burdens caused by the war in Ukraine with an aid package worth billions for companies in Germany. Many companies are groaning under exploding energy prices in particular, but supply chains have also been disrupted. The package includes a loan program via the state development bank KfW as well as energy cost subsidies for companies.

"We want to cushion hardships and prevent structural disruptions," said Finance Minister Christian Lindner (FDP) in Berlin on Friday. He spoke of an economic policy "shock absorber". However, the aid package is not comprehensive protection. Economics Minister Robert Habeck (Greens) said that there would be no "total assumption of costs" by the state.

This makes the package different from measures taken after lockdowns during the coronavirus pandemic, when economic output collapsed. Although economic expectations have deteriorated due to the war in Ukraine: The economy is on a growth trajectory and the situation on the labor market is stable, Lindner said.

Habeck said that the package was precisely targeted, avoided false incentives and was comprehensive. "However, comprehensive does not mean that every hardship will be taken away, that every loss, every extra euro for energy, for example, will be compensated." Companies and citizens alike would have to bear a burden.

In order to cushion this burden for citizens, the coalition has now adopted two relief packages. Measures from the first package were discussed for the first time in the Bundestag on Friday. The employee lump sum for income tax and the basic tax-free allowance are to be increased, as is the commuter allowance for long-distance commuters.

However, the government had already made it clear that it would not be possible to compensate for everything. The burdens of the war would also affect Germany. With regard to a new package of sanctions against Russia adopted by the EU, including a coal embargo, Habeck said that the sanctions would hit Russia hard. "However, it is also true that there are no sanctions that do not have economic consequences here in Germany." Companies would no longer be able to do certain types of business, and higher prices would have to be paid.

The five pillars of the aid package

The aid package for companies is based on five pillars. A KfW loan program is intended to secure the liquidity of companies in the short term. Companies of all sizes are to be given access to low-interest, liability-free loans. The program, which is to be launched in April, is to have a volume of up to 7 billion euros. There are also to be guarantee programs.

The German government also wants to prepare further measures. Firstly, there is to be a "temporary and narrowly defined" cost subsidy to cushion the costs of the rise in natural gas and electricity prices for particularly affected companies. According to Habeck, these direct subsidies for energy-intensive companies are to be granted if energy costs more than double compared to the previous year. A phased model is planned, with a subsidy of up to 50 million euros per company.

Targeted equity and hybrid capital subsidies are also to be examined. During the pandemic, Lufthansa, for example, was rescued via the economic stabilization fund. However, this could now be done via "allocation transactions" by KfW.

There is also to be a financing program for companies that are at risk due to high security deposits. In the event of sudden, dramatic price jumps, companies that trade electricity and natural gas forward on the energy exchanges may have to deposit very high additional collateral, known as margins, on the exchange at short notice.

Standardized criteria for granting loans

The German government now wants to draw up standardized criteria for granting companies short-term credit lines from the KfW that are backed by a federal guarantee. A total credit volume of up to 100 billion euros is planned for this. Habeck said that under no circumstances should systemically important companies be allowed to fall, thereby jeopardizing the German energy market and security of supply.

Business associations had been calling for the aid for some time. The head of the German Association of Energy and Water Industries, Kerstin Andreae, said that energy suppliers were faced with unprecedented costs when purchasing energy. It was therefore right for the government to create the possibility for companies to temporarily access loans from the KfW and take advantage of further measures if necessary.

BDI welcomes the plan

The Federation of German Industries (BDI) stated: "The aid announced must now be made available quickly to companies that are already facing existential difficulties due to the dramatic rise in energy prices." The measures announced were a step in the right direction, said Peter Adrian, President of the Association of German Chambers of Industry and Commerce (DIHK). "Whether the measures will ultimately be enough to get the German economy through this crisis after a good two years of corona is currently not foreseeable, because the current development is too dynamic for that."