Economic Stabilization Fund (WSF) – Legal Background and Structure
Definition and Objectives of the Economic Stabilization Fund
The Economic Stabilization Fund (WSF) is a special state fund of the Federal Republic of Germany created in 2020 in response to the COVID-19 pandemic by the Economic Stabilization Fund Act (WSFG). Its purpose is to stabilize the real economy and, in particular, to safeguard economic foundations in exceptional crisis situations. The main objective of the fund is to provide financial support to systemically important companies, with a focus on maintaining economic infrastructure and securing jobs.
Legal Foundations
Economic Stabilization Fund Act (WSFG)
The legal basis for the Economic Stabilization Fund is the Act on the Establishment of the Economic Stabilization Fund (Economic Stabilization Fund Act, WSFG) of March 27, 2020, Federal Law Gazette I p. 543, most recently amended by the Act of December 20, 2022, Federal Law Gazette I p. 2606. Further relevant legal texts and regulations also apply, particularly in connection with amendments, extensions, and implementation at the European and international levels (for example, state aid approvals under EU law).
Administrative Structure and Public Oversight
The Economic Stabilization Fund is administered by the Federal Ministry of Finance in agreement with the Federal Ministry for Economic Affairs and Climate Action. The Federal Republic of Germany – Finance Agency GmbH is responsible for operational implementation. Parliamentary oversight is ensured through regular reporting and information obligations to the Budget Committee of the German Bundestag.
Structure and Instruments of the Economic Stabilization Fund
Scope and Budgetary Integration
The WSF was initially equipped with a guarantee framework of up to 400 billion euros, supplemented by 100 billion euros for recapitalizations and 100 billion euros for the refinancing of KfW special programs. The fund is designed as an auxiliary budget within the meaning of Article 110(1) of the Basic Law.
Stabilization Instruments
- Guarantees (§ 6 WSFG): The fund can provide guarantees to secure liabilities, particularly to ensure liquidity and maintain companies’ ability to access capital markets.
- Recapitalization Measures (§ 7 WSFG): These include federal participation in companies (e.g., through the acquisition of shares or silent partnerships) and other equity measures.
- Refinancing of Special Programs (§ 8 WSFG): Funds can be used to finance special measures, particularly those of the KfW (Kreditanstalt für Wiederaufbau).
Access and Approval Requirements
Access to funds is subject to strict requirements. Beneficiary companies must, among other things, be classified as systemically relevant or demonstrate significant importance for Germany as a business location or for the labor market. The allocation decision is made by the Federal Ministry for Economic Affairs and Climate Action in coordination with the Federal Ministry of Finance. All measures are subject to compatibility with European state aid law (Art. 107 et seq. TFEU).
Legal Framework for the Use of Funds
Compliance with EU State Aid Law
Measures of the Economic Stabilization Fund are subject to notification and approval by the European Commission under the state aid rules. The essential legal framework is the ‘Temporary Framework for State Aid Measures to Support the Economy in the Current COVID-19 Outbreak’ by the Commission, whose requirements must be strictly adhered to.
Binding Conditions and Compliance
When allocating funds, the requirements pursuant to § 10 WSFG must be observed, particularly regarding
- Prohibition of dividends and bonuses,
- Requirements for corporate governance and business policy,
- Restrictions on company acquisitions und
- Obligations to maintain operations and preserve jobs.
Approval from the Budget Committee of the German Bundestag must regularly be obtained if a certain value threshold of the measures is exceeded (§ 12 WSFG).
Statutory Reporting Obligations and Oversight
The WSFG provides for comprehensive reporting by the Federal Government regarding the type, scope, and impact of the measures (§ 14 WSFG). Ongoing parliamentary oversight is exercised by the appropriate committees, particularly regarding transparency and proper use of funds.
Duration and Adaptations of the Economic Stabilization Fund
The fund has been adjusted several times in its duration and modalities, most recently through the ‘Act for the Further Development of the Economic Stabilization Fund to Cushion the Consequences of the War Against Ukraine’ (WSF-Energy). This modified and expanded the resources and instruments of the WSF for managing the energy price crisis. The specific duration and any extensions are governed by law and are amended accordingly in the event of a continuing crisis.
Significance and Legal Evaluation
The Economic Stabilization Fund represents an exceptional measure in German economic policy and is characterized by enormous legal complexity. In addition to its primary legislative framework, numerous ancillary laws, budgetary requirements, EU regulations, and state aid provisions are interconnected. Legally compliant application and oversight of the fund are fundamental to its effectiveness and to upholding budgetary principles.
Summary
The Economic Stabilization Fund is a state instrument to support and stabilize the German real economy in exceptional crisis situations. Its legal basis is the WSFG, supplemented by numerous other statutory provisions, especially at the European level. The fund is characterized by highly complex legal design, strict allocation requirements, far-reaching control mechanisms, and close involvement of parliamentary bodies. WSF measures are also subject to ongoing adjustments in response to economic and political needs.
Frequently Asked Questions
Is the allocation of funds from the Economic Stabilization Fund subject to specific legal oversight?
The allocation of funds from the Economic Stabilization Fund (WSF) is subject to a variety of legal control mechanisms to ensure transparency and the rule of law. The basis is the Economic Stabilization Fund Act (WSFG), which regulates procedures, requirements, and responsibilities. The allocation of funds is decided by the Federal Ministry for Economic Affairs and Climate Action as well as the Federal Ministry of Finance, which carry out the tasks of managing the fund. In addition, budgetary provisions apply, particularly from the Federal Budget Code (BHO). External oversight is exercised by the Federal Court of Auditors, which examines all uses of funds for legality and appropriateness. There is also parliamentary control through the Budget Committee of the German Bundestag, which is informed of significant decisions and may inspect documents. In disputes over eligibility or extent of support, administrative court proceedings can also be pursued, with measures generally subject to what is known as administrative discretion, which is reviewable for legal errors.
Which state aid requirements of the EU must be observed in the case of actions by the Economic Stabilization Fund?
Measures of the Economic Stabilization Fund, in particular in the form of guarantees, recapitalizations or direct financial aid, are subject to the state aid rules of the European Union, especially under Articles 107 and 108 TFEU. State aid may generally only be granted if it has previously been notified to and approved by the European Commission to prevent distortions of competition in the internal market. During the COVID-19 pandemic, special provisions applied under the ‘Temporary Framework’, which allowed for simplified approval procedures. Nevertheless, all measures must be designed in line with the Commission’s requirements, such as appropriateness, proportionality, and limitation to what is necessary. If the approval requirements are not met, the Commission may issue recovery decisions, thus requiring national implementation acts.
What legal requirements apply to interventions in shareholder or creditor rights when utilizing the Economic Stabilization Fund?
Interventions in shareholder or creditor rights, such as through capital measures, silent partnerships, or debt haircuts, require an explicit legal basis. Within the scope of the WSF, this is provided in particular by the Economic Stabilization Fund Act, which is linked with corporate and insolvency law provisions. In the case of recapitalization measures, for instance, amendments to articles of association and capital actions must comply with the German Stock Corporation Act and safeguard shareholders’ rights. Insolvency protection mechanisms must also be considered when creditor interests are affected. In the event of partial expropriation or similar burdensome interventions, Article 14 of the Basic Law (property guarantee) applies; thus, adequate compensation must be provided. All measures therefore require careful legal documentation, approval by relevant bodies, and, if applicable, judicial review options.
To what extent is there a legal entitlement to support from the Economic Stabilization Fund?
There is generally no explicit legal entitlement to assistance from the Economic Stabilization Fund. The allocation of funds is at the discretion of the competent authorities, which is structured by the WSF Act and the relevant statutory regulations. Decisions are made based on funding requirements, such as impending insolvency, systemic relevance, or the overall economic significance of the company. When an application is rejected, there is, however, the right to an error-free discretionary decision and a justification under § 39 of the Administrative Procedure Act (VwVfG), which is subject to judicial review. In cases of arbitrary or discriminatory treatment, the company may seek legal remedies, for example, in administrative court proceedings.
How is the use of funds from the Economic Stabilization Fund documented and published?
The documentation of fund disbursement and use follows the principles of proper accounting and budgetary clarity. The responsible ministries provide detailed usage reports to ensure traceability of decisions. The federal government is also required to prepare an annual report on the Economic Stabilization Fund’s activities and submit it to the German Bundestag. These reports contain information about the approved measures, their recipients, the scope, and the intended objectives. Furthermore, the data is subject to the provisions of the Freedom of Information Act (IFG), so that third parties can request access under certain conditions, provided that no legitimate business secrets are affected.
What legal consequences are threatened by the misuse of funds from the Economic Stabilization Fund?
The misuse of funds provided may result in various legal consequences. Central among these is the recovery of granted funds based on the relevant grant notices or contractual agreements. Criminal offenses, such as subsidy fraud under § 264 of the Criminal Code (StGB), may also be committed. Civil law claims for damages are possible and may be asserted by both the state and third parties. In cases of serious violations, companies may be permanently excluded from further funding and may suffer reputational damage through public reporting in accordance with federal transparency obligations. Examinations by investigative authorities and audit offices also take place, which may prosecute administrative offenses.
