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Germany extends short-time work support until end of 2021

Jill Petzinger
·Germany Correspondent, Yahoo Finance UK
·2-min read
07 August 2020, Mecklenburg-Western Pomerania, Torgelow: An employee cleans a core pressed from sand in the mould construction area of the Torgelow iron foundry. The company, which with 320 employees is one of the most important employers in Western Pomerania, had filed for insolvency in mid-July. Photo: Jens Büttner/dpa-Zentralbild/ZB (Photo by Jens Büttner/picture alliance via Getty Images)
The German economy contracted by 9.7% in the second quarter of 2020, compared with the same period in 2019. Photo: Jens Büttner/picture alliance via Getty Images

The coalition government in Berlin last night agreed to keep funding its short-time work programme for an extra year to support companies and their staff during the ongoing coronavirus crisis, extending it until the end of 2021.

Called “Kurzarbeit” (short work), the government programme was introduced during the financial crisis in 2008 to avoid mass layoffs and allow companies to quickly get staff working again once the economy picked up.

The government pays about 60% of a worker’s salary — 67% if they have children — and their employer either puts the worker on reduced hours or sends them home if there is no work for them. That amount goes up to 70% of lost wages if people are on short-hours for more than four months, and after seven months, to around 80%.

German vice-chancellor and finance minister Olaf Scholz recently described Kurzarbeit as the country’s “greatest economic and socio-political act,” and “a masterpiece of the German state.”

In May, at the peak of the coronavirus crisis, around 7.3 million people in Germany were on short-time hours. The Ifo Institute estimated that about 5.6 million workers were still on short-hours in July.

READ MORE: Coronavirus: German economy shrank by 9.7% in second quarter as pandemic peaked

The extension of the short-time work scheme and other support measures, including allowing companies to delay bankruptcy filings and extending bridging loans for SMEs, will cost the government an extra €10bn.

Scholz said last week that the German government would borrow more money in 2021 to weather the coronavirus fallout.

The government waived its constitutional rule against taking on new debt earlier this year as the pandemic spread rapidly and the country went into lockdown.

It will borrow around €218bn (£195bn, $257bn) this year, and take on additional debt in 2021, meaning it cannot reinstate its Black Zero — “Schwarze Null” — debt-brake law for a second year running.

"Next year we will continue to be forced to suspend the debt rules and spend considerable funds to protect the health of citizens and stabilise the economy," Scholz said.

The German economy contracted by 9.7% in the second quarter of 2020, compared with the same period in 2019, as coronavirus pandemic lockdowns caused a record quarterly collapse in economic activity

Investments excluding construction fell by 19.6%, exports plunged by more than 20%, and private consumption was down 10.9%.

As a whole, Berlin has earmarked over €1tn to help Europe’s largest economy recover from the pandemic. It unveiled a €130bn financial stimulus package in June.