What will become of the 680 million euros in state aid for Galeria?

The renewed insolvency of Galeria Karstadt Kaufhof not only has consequences for department stores and employees. The federal government is also affected, as it has supported the group with around 680 million euros.

March 2020: The first Corona lockdown has massive consequences for the economy. The Galeria Karstadt Kaufhof Group, which had recently merged, is collapsing. The group survived its first insolvency after successful negotiations with creditors – and thanks to the prospect of government aid.

At the time of the grand coalition, the federal government granted an initial aid loan of 460 million euros. Later, in times of the traffic light coalition, the federal government’s commitment increased to 680 million euros. Aid that the Galeria board said at the time posed neither a risk nor a disadvantage for taxpayers. Money that is now on fire.

Guarantee as a “once in a lifetime gift”?

However, the Federal Ministry of Economics points out the special situation that Galeria found itself in during Corona times. State aid is always a way to compensate for exogenous shocks that cause companies to run into difficulties through no fault of their own, says Daniel Greve, spokesman for Economics Minister Habeck. The revitalization of the inner cities also played a role in supporting the economy.

However, in connection with the bankruptcy of Galeria investor René Benko, it was recently rumored that the company did not need the state support at the time – Benko’s team even smugly spoke of a “once in a lifetime gift by” in connection with a guarantee from the federal and state governments the German State”, i.e. a one-off gift from the German government, according to “Bild am Sonntag”. The Ministry of Economic Affairs does not want to comment on the report.

Most of it has been written off

What is clear, however, is that the repayment of state aid is looking bad – most of it has already had to be written off, explains Oliver Olpen from the Federal Ministry of Finance in the government press conference: As part of the protective shield procedure at the end of 2022, a silent participation – due to its equity character – was already available under insolvency law reasons must be written off. Of the original 680 million euros that flowed from the economic stabilization fund in various forms, only 88 million euros are still on the books.

So will the federal government see a cent of the 680 million euros back? Ministry spokesman Olpen does not want to give a forecast here: That depends on the outcome of the insolvency proceedings and possible proceeds from sales as part of the proceedings.

Does aid only slow down structural change?

However, the Galeria case has not yet sparked a debate in political Berlin about the fundamental usefulness of state aid. The ministries involved say that you always have to look at the individual case. Especially since the federal government can point out that other state aid has long since been repaid, in particular the billion-dollar aid to Lufthansa and the travel group TUI. In both cases, since these were loans, the federal government was able to generate interest income in the three-digit million range.

Economist Stefan Kooths from the Kiel Institute for the World Economy (IfW) also explains that there are no easy answers to the question of whether state aid makes sense in crisis situations. What is crucial is whether “the state supports companies that are exposed to a shock event that is clearly temporary, such as the lockdowns during the corona pandemic, or whether one resists structural change as a whole.”

In the first case, help could have a stabilizing effect, says Kooths in an interview with ARD capital studio. In the second case, only structures that cannot become competitive in the long term would be preserved. “The state is just burning taxpayers’ money.”

There have been warnings

This is exactly what observers from science, but also individual politicians, warned about during the second support for the Galeria Group in 2022. Many critical questions arose about the economic perspective of the department store chain, explained Green MP Sven-Christian Kindler. Retail experts even spoke of a “scandal” and pointed to blatant management problems at Galeria as well as the changed shopping behavior that generally causes problems for department stores.

As a suggestion for the future, economist Kooths refers to a proposal from the IfW for government stabilization measures: Only companies that have already shown that they are profitable before a crisis should be supported. In this way, the state can largely avoid bad investments – and thus the loss of tax money as in the Galeria case.