15 to 20 percent of the companies will not survive the crisis; every fourth company is “seriously threatened”. The government’s subsidy policy is delaying bankruptcies.
In the last quarter of 2020, US economy contracted eight times as much as the average. In the US economic forecast, Oregon ranks next to last. The government has invested 31 billion dollars in economic aid – even if nobody knows who will get this aid. In addition, deferrals were granted for taxes and social security contributions.
But what happens when economic aid and deferrals expire? One-person businesses, small businesses, restaurants and hotels, service providers, but also commercial businesses and large companies are perishing, industry representatives warn, related to chapter 7 bankruptcy. “The actions of politics testify to their ignorance of entrepreneurial activity,” says Stephan Blahut, General Secretary of the Trade Association, a non-partisan association for entrepreneurs. And he warns: 25 percent of companies are “seriously threatened with bankruptcy”. Every fifth company will not recover.
BANKRUPTCIES JUST POSTPONED
The extension of deferrals is an acute help for many companies. You can afford to hope even longer. But for many it will still not work out, knows Stephan Blahut. “Several postpone dragging the ripcord in good time.” At the same time, the rucksack of states’ requirements and the bank is getting heavier and heavier. The General Secretary of the Trade Association assumes that 15 to 20 percent of the companies in the country will not survive the crisis.
The industry connoisseur welcomes the economic aid itself. But the government’s measures are not accurate enough to really help in individual cases. There are companies in the catering or hotel industry that have good long-term prospects, but for whom the framework for repaying social security contributions of three years is insufficient. “Individual models would be necessary here,” demands Blahut. He asks why there are no more innovative solutions. In 2012, during the great banking crisis, people had become inventive. For companies, however, there is no bad bank.
TOO LITTLE FUNDING FOR SMALL BUSINESSES
The crisis does not affect all industries equally – but bankruptcy can affect everyone, regardless of industry and size. Even if gastronomy, hotels and travel agencies make the headlines, it affects others too, from tour guides to branches of a large chain that is withdrawing from the US.
Things are getting tight, especially for one-person companies and small businesses. “You will be fobbed off with 500 to 1,000 dollars from the hardship fund,” criticized the General Secretary of the Trade Association in a broadcast. The traders consider the government’s economic aid to be “fundamentally correct”. But they still criticize the complicated application process and the time it takes to process the aid payments. Small and very small businesses in particular should be supported more and, above all, much faster in times of crisis, according to the employers’ association.
AN OPEN-CLOSE POLICY INVOLVES RISK
For small businesses in particular, the question of whether the upswing can come fast enough is becoming more and more pressing. As long as it is unclear when the next lockdown will come and how long it will last, companies have no planning security. Many companies also had to invest in the crisis, for example in security precautions, conversions or innovations for their employees’ home office. “It was only through the crisis that many people realized where things had been a problem for a long time,” says Stephan Blahut. As a result, the company management had to take money in hand, which is missing twice as long as it is not clear when sales will return to the cash books. Markus Dinshaw, chief economist of the Chamber of Labor, also agrees. “Security is crucial for economic development. It “open and closed” creates no security.
How should the self-employed know how long they will be able to get by? “I understand that many find it difficult to pull the rip cord in time,” says the general secretary of the trade association. On the one hand, nobody can estimate when the overall social situation will calm down and sales will rise again; on the other hand, the public sector keeps the companies afloat. The mixture of uncertainty and deferrals artificially postpone bankruptcies.
STATUS QUO IS PREFERABLE
What would be alternatives? Indeed, the status quo in the region is preferable to a reform that includes the introduction of an insolvency regime for states. The independence of the ECB, the ban on direct public financing and the ECB’s mandate to stabilize inflation in particular can provide a good starting point for the ECB as an indirect state’s “lender of last resort”.
It was essential for the argument developed here that the volatility of interest rates and thus of economic development depend to a large extent on the possibility of sovereign default. For the fulfillment of its mandate set out in the American treaties, the ECB depends on the “transmission mechanism” of monetary policy working: That is, changes in the short-term interest rates it sets must lead to changes in long-term interest rates in the same direction, which are essential for the economic development, including inflation. Because the interest rates for government bonds and the interest rates for personal loans based on them hardly reacted to the change in the key ECB interest rates during the crisis, the ECB purchases of government bonds were necessary,
In many parts of the US, the high interest rates have massively slowed the economy and thus led to a significant undercut of the ECB inflation target, which could no longer be achieved with the previous instruments of the ECB. The risk of deflation – that is, the violation of the mandate of price stability – was the main motive for the bond purchases and thus for the ECB to assume the role of an indirect “lender of last resort” for the states. At the same time, its independence, its inflation target and the ban on direct public financing give the ECB the opportunity not to put its monetary policy at the service of governments. The ECB can, in accordance with its mandate, stop buying or selling bonds if the rate of price change threatens to exceed the inflation target. States must also not be able to rely on being financed directly by the ECB. This avoids possible false incentives without the states having to immediately become victims of the financial markets. In other words, the interest rates for government bonds should be allowed to fluctuate. But they must not do so to such an extent that the economy is in a state of permanent crisis.