RPT-State support stops pandemic sinking one in ten German firms -IMF

John O'Donnell
·2 min read

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* German furlough scheme bankrolls millions of workers

* Pandemic cash and guarantees avert disaster for industry

* IMF warns of bankruptcy wave, debt risk when aid unwound

By John O'Donnell

FRANKFURT, Jan 19 (Reuters) - Government support is keeping roughly one in ten German companies afloat that would otherwise have gone bust during the coronavirus pandemic, the International Monetary Fund has found.

In a report that on Tuesday laid bare the scale of economic damage masked by state aid, the Fund also warned that, once support was unwound, bankruptcy could soar, potentially weakening Germany's banks.

The analysis said the pandemic impact was worst for hotels and restaurants, where almost a third of loans could have gone unpaid without state relief.

German government support - broad-based and including guarantees, grants and waivers on filing for insolvency - has been among the most generous among western nations, according to a separate study by think tank Bruegel.

Some domestic critics say the breadth of the aid has prevented underperforming companies from being weeded out and, although the pandemic has shuttered businesses, the insolvency waiver offer meant German bankruptcies fell 13% year on year in the first nine months of 2020 and almost a third in October.

The IMF said bankruptcies "might jump" when support was unwound, particularly among smaller firms that are heavy borrowers from the community savings banks at the heart of the financial system. It said the build-up of credit risk needed to be carefully monitored.

Shekhar Aiyar, the IMF's mission chief for Germany, predicted "a lot of pain" and a "delicate balancing act" in withdrawing support such as Germany's Kurzarbeit furlough scheme, though the country was able to borrow more if needed.

Six million Germans were on the Kurzarbeit scheme - paying up to 4,600 euros a month - in April and some two million were still on it towards the end of last year.

"With this support in place, how can we know ... which companies are really bust or not?" said Guntram Wolff, director of Bruegel.

"Take the airlines after the pandemic. I'm convinced we'll still have less travel. Pulling the plug will be difficult." (Reporting By John O'Donnell; editing by John Stonestreet)