Bottomless pit – the Galeria case illustrates the pitfalls of entering the state

Galeria boss Miguel Müllenbach announced a “topic of existential importance” in a two-page letter to employees this week. The department store chain that emerged from the merger of Karstadt and Kaufhof needs fresh money – once again.

The manager has already identified the source: the state. He has helped out twice since the company went bankrupt two years ago. A total of 680 million euros from the Corona Economic Stabilization Fund (WSF) flowed to the dealer. Now the company is apparently making another application for help.

It is a coincidence that the plans become known in the same week that the Bundestag is discussing a new edition of the Corona Fund - this time as an energy crisis fund. Again, ailing companies are to be injected with cash injections.

But the Galeria case illustrates the pitfalls of the state becoming a lender. There is a threat of zombie companies that are kept alive indefinitely solely by taxpayers' money.

Because the department store chain can now apply for fresh money from the fund, regardless of the Ukraine crisis or the consequences of the pandemic. The hurdle for those companies that, like Galeria, have already received money from the fund due to Corona emergencies, is extremely low in the law: the federal government can always give fresh money if the previous rescue measure is “secured” with it. In plain language: So that the money paid earlier was not in vain, more fresh capital is injected.

Everyone is familiar with the associated psychological trap from everyday life: the repair of the actually scrap car that is far too expensive again, so that the high expenses for the previous visit to the workshop were not in vain. The result is the proverbial bottomless pit.

The political nature of the WSF amplifies this effect. After all, the federal authorities decide on fresh money behind closed doors. The formal requirement is that the respective company is likely to survive as a result – a flexible criterion.

These are difficult times for Minister Robert Habeck. Nikolaus Doll from the WELT political editorial team explains the difficult situation of the economics and climate protection minister, who "now works in a very ugly triangle".

Source: WORLD

The bridge that Galeria boss Müllenbach will build for politics is already becoming apparent. In the corporate environment, it is said that the main reason for the recent crisis is the additional burden of energy costs - i.e. lighting and air conditioning in the branches. In addition, customers saved - only temporarily - because of inflation and war scenarios. The message from the company headquarters: Basically, the strategy of making the branches more attractive by remodeling is successful.

That doesn't make sense to everyone. After all, Karstadt and Kaufhof were already in crisis before the merger – despite the constant stream of new managers and strategies. The merger under the direction of the Signa Holding of the Austrian investor Rene Benko from 2019 was obviously not the hoped-for liberation, nor was the planned insolvency almost a year later in the Corona crisis.

The concept of a department store for every budget seems outdated to many experts in the age of e-commerce - unlike luxury stores like Berlin's KaDeWe or the new premium stores from Breuninger.

Nevertheless, Economics Minister Robert Habeck (Greens) is faced with great temptations to put another rescue infusion on Galeria. The main incentive for him is: rest. The minister is already under constant stress because of the energy crisis, and he doesn't need a new construction site.

The reasoning is simple: If Habeck does not approve any new aid, protests from the employees, the union and the manager are foreseeable. The mayors would whine about the imminent vacancy in their pedestrian zones. And the economics minister would be pilloried as the cause of the insolvency. In addition, there is the aforementioned rusting phenomenon: Habeck would have to justify why he approved new loans at the beginning of the year, which will be written off with insolvency.

So it's much more comfortable for Habeck if he simply waves through the help. If Galeria gets a new cash injection, the few critics who insist on regulatory policy will fall silent after a few days. Critics will also be appeased by conditions such as private owners participating in the recapitalization. Above all, however, the sum of millions will go under in the boom of the countless aid packages.

With the relaunch of the WSF as a crisis fund, there is an unforeseeable threat of many more such cases in which the federal government will support ailing business models for years. In the short term, this may secure jobs and create stability. In the medium term, however, it will not only burden taxpayers. The government intervention is making the already conservative German economic structure even more immobile.

Galeria is an example of this. At a time when there is a shortage of workers at all skill levels, unneeded jobs are being artificially preserved. The intervention also feeds the illusion that the German shopping malls could continue as before without conversion and modernization. Necessary structural reforms are thus being delayed.

The continuation of the WSF also underpins the trend towards cushioning entrepreneurial risks with state tax money. This distorts investors' risk calculations: in a market economy, high profit opportunities must be matched by correspondingly high risks.

The Galeria investor Signa actually knows that. The holding is successful as a real estate developer of ambitious projects such as the Hamburg Elbtower skyscraper and Berlin's Upper West and can rely on wealthy financiers in this area. Signa's retail subsidiary embarked on the Galeria adventure, which was also interesting because of its houses, with open eyes.

There is a lot to be said for holding the investor solely responsible for the business model this time. The current crisis is different from the Corona period, when government regulations put a disproportionate burden on retailers. Now generally accessible crisis aid such as the gas price cap should be enough - otherwise something is fundamentally wrong. At Galeria and in the state crisis aid as a whole.

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