Germany Weighs Nationwide Lockdown as Bavaria Restricts Movement

(Bloomberg) --

Germany may impose a nationwide lockdown in the coming days as Bavaria became the first state in the country to enforce severe restrictions on citizens in an effort to stem the spread of the coronavirus.

The southern region, a hotspot for confirmed cases, banned public gatherings and threatened stiff fines for anyone flouting the rules. The measures take effect at midnight Friday and will last for an initial two weeks, with Germany’s other 15 states expected to follow suit. A senior minister in Chancellor Angela Merkel’s cabinet warned that if people continue to socialize, all Germans may be confined to their homes.

“We are almost completely winding down public life in Bavaria,” Premier Markus Soeder said at a news conference in Munich Friday. “From tomorrow it’s even more imperative: stay at home and only go out in exceptional circumstances,” he said, adding that restaurants will be closed down across Germany.

Merkel will consult regional leaders Sunday to discuss the latest efforts to contain the virus and a cabinet meeting is planned for Monday, after which further restrictions could be announced. Germany has more than 15,000 confirmed cases and 44 deaths.

As they struggle to contain the spread of the disease, officials are also moving to help companies suffering from the impact of the outbreak on the economy.

The government will create a fund worth 500 billion euros ($538 billion) to provide firms with loan guarantees and injections of cash, Der Spiegel magazine reported. State aid of as much as 180 billion euros would be made available under the plan, which would lead to an increase in federal government borrowing, the report said. Finance Minister Olaf Scholz earlier threw his weight behind the government buying stakes in companies struggling to avoid bankruptcy.

In a break from its policy of running balanced budgets, Merkel’s coalition wants to ask parliament for authorization for sweeping spending leeway, people with direct knowledge of the discussions said Thursday. The Cabinet is set to sign off on the request in the coming days.

The historic move would be necessary under German law, which caps outlays under normal circumstances via a constitutional mechanism, known as the debt brake, which only allows for excess spending in crisis situations. The government has already pledged to lend as much as 550 billion euros ($594 billion) via state-owned development bank KfW.

Scholz said that, if necessary, the federal government could buy company stakes using a fund set up to deal with the financial crisis a decade ago.

Liquidity Shortage

“We used something similar in 2008 to 2009, although that was focused on the banking sector,” Scholz told Deutschlandfunk radio Friday.

“It could very well be that a company suddenly has a shortage of liquidity, and we are trying to address that with our liquidity program,” he added. “But at some point share capital will be required and we’re ready again to use the financial markets stability fund to make our contribution.”

Germany set up its 480 billion-euro bank rescue fund in October 2008, the month after the collapse of Lehman Brothers Holdings Inc sparked a global credit crunch.

The majority of its firepower consisted of guarantees, but the fund also took stakes in banks by injecting billions of euros of capital. More than a decade later, Germany still holds shares in Commerzbank AG and is continuing to wind down the assets of failed lender Hypo Real Estate Holding AG.

As the economic fallout widens, companies in sectors like transport, retail and tourism are reeling and some of Germany’s corporate titans -- from Volkswagen AG to Daimler AG -- have taken unprecedented steps to idle plants.

BMW AG this week abandoned hopes for another record year in sales, predicting deliveries will be “significantly below” 2019 levels and profitability the weakest in years.

The government could purchase a stake in Deutsche Lufthansa AG -- which said Thursday it will stop 95% of flights -- as part of a rescue, a person familiar with the plan said last week.

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