Angela Merkel and the German Government have extended the furlough scheme, known as
Kurzarbeit, well into 2021 raising concerns that businesses that would otherwise not be viable will be kept on life support at the expense of Germany’s economy.
Germany’s problems go beyond the pandemic, with many businesses failing to restructure
before the scheme was implemented. Paul Donovan, Global Chief Economist for Wealth
Management at UBS said
‘It is economically inefficient to preserve jobs in companies that are unlikely to survive structural changes’.
This comes as one in five companies in a recent survey said they saw themselves at risk of
failure due to the pandemic. With insolvencies set to increase 20% more this year than in
the 2008 financial crisis prolonging the pain could have lasting repercussions for the
German economy, the largest in Europe.
2021 is an election year in Germany and so there is a powerful political element to the decision to extend furlough - job protection is at the forefront of every politician's mind.