Vodafone Germany Chef Joussen with Chancellor Merkel and California Governor Arnold Schwarzenegger on Tuesday, March 03, 2009

German Chancellor Merkel's Cabinet agrees on launch of €100-billion corporate aid fund to help struggling firms

German Chancellor Angela Merkel's Cabinet today agreed on the launch of a  €100-billion corporate aid fund to help struggling firms.

Under the terms of the deal, that runs until the end of 2009, companies hit by the global economic downturn will be able to apply for state assistance from the first half of March.

Economics Minister Karl-Theodor zu Guttenberg said the first beneficiaries of the fund are expected to be struggling carmaker Opel, which is owned by US car giant General Motors, and components delivery group Schaeffler-Continental.

The fund follows a €500-billion bail-out for German banks and two economic stimulus programmes worth more than €80 billion, in response to the severe recession.

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In Ireland, in contrast, the Government has little flexibility to help ailing firms, because it squandered the surpluses of the boom years.

The corporate aid fund will offer €75 billion in liquidity guarantees and €25 billion in direct loans.

To get help from the fund, companies will have to meet several criteria, such as providing a viable business plan and evidence that the loan won't distort competition in the long term. The conditions were outlined in a plan submitted to the German cabinet Wednesday by zu Guttenberg.

The plan also stipulates that companies won't receive government guarantees for any bonds they issue, Economy Ministry spokesman Steffen Moritz said.

The government is examining whether and how to assist Opel. Chancellor Angela Merkel has previously said she favors liquidity guarantees as a tool to help ailing companies in the car industry such as Opel and family-owned engineering company Schaeffler Group. Schaeffler is seeking help to address a capital shortage of between €5 billion and €6 billion, partly because it has to fund the takeover of tire maker Continental AG.

Merkel told Bundestag members of her two conservative parties on Tuesday that Opel isn't a company that is "systemically relevant" to the German economy, according to the Rheinische Post newspaper.

It employs about 29,000 people in Germany.

The German government also agreed on the eight members of the €100 billion fund's steering council, which will advise the steering committee once companies apply for guarantees exceeding €300 million and loans exceeding €150 million. For applications below these levels, state-owned bank KfW can award guarantees or loans.