Last October, the confederation of German welfare organizations, the Paritätische Wohlfahrtsverband, published an alarming survey conducted among its member organizations. Around 90 percent of social institutions — roughly 1,300 took part in the nationwide survey within three short weeks — reported that rising energy, food, and fuel costs were threatening the existence of their social or cultural services.
Eva Völpel works on economic and social policy at the Rosa Luxemburg Foundation’s Institute for Critical Social Analysis in Berlin.
Translated by Loren Balhorn.
The survey appeared to evidence that nothing less than devastating cutbacks were looming for social work institutions across Germany, whether in the areas of health, care, elderly assistance, assistance for the disabled, women’s shelters, day-care centres, integration work, addiction and debt counselling, or help for the homeless.
Price Brakes to the Rescue?
Then, in early November 2022, the federal government and the federal states agreed on an electricity and gas price brake as well as further assistance in the form of various hardship funds. Nevertheless, Joachim Rock, head of the social and European policy department at the Paritätische, says it is not yet possible to estimate whether this will cushion the worst effects: “The agreement between the federal government and the states has created a higher degree of predictability concerning the scope of relief, but it doesn’t solve all the problems, either.”
One issue, for example, is that many social institutions simply cannot save much gas or electricity, meaning they are often not likely to benefit at all from the energy brakes capping 80 percent of gas or electricity consumption at a lower price for private individuals, small- and medium-sized enterprises (SMEs), or associations, with only the remaining 20 percent paid at market prices. This is because said facilities are often housed in buildings that are poorly insulated or care for old, sick, homeless, or traumatized people who have a special need for heating.
Moreover, the higher prices for energy aren’t the only thing causing problems, but also the sometimes significantly higher expenses for food, fuel, or services. “In the outpatient sector, for example, fuel costs are particularly high, and in care for the elderly or day-care centres, food prices are significantly higher”, Rock noted.
Many social service providers already took an economic hit during the pandemic. “Many are still stretched to the limit”, he said. Yet demand has risen due to inflation. Food banks are being visited by far more people than before the war in Ukraine began, and counselling centres for debtors and the homeless are also reporting increased numbers.
Unlike in the private sector, however, non-profit organizations have hardly any reserves. They only generate a small amount of profit, which they promptly reinvest in charitable aims. Thus, not only the amount of financial aid becomes a decisive question, but also when the money will flow.
Even non-profit institutions have run into difficulties again and again, as shown by the insolvencies of nursing homes run by the German Red Cross homes in recent years.
To compensate for economic hardship beyond the electricity and gas price brakes, the German government announced last November that it would make a total of 12 billion euro available for hardship schemes. Eight billion of this was earmarked for hospitals and inpatient care facilities, 1 billion for SMEs, and half-a-billion for non-university research institutions. A total of two billion euro is to be made available for social institutions and social service providers.
Several federal states announced that they would supplement the federal funds with their own state aid. Hesse, for example, wants to compensate for the fact that the federal government has not provided any money for sports clubs in its hardship regulations.
Yet whether and how the funds will be used remains impossible to say three months after the federal and state governments reached a decision. The federal states are responsible for administering the federal funds, but as Rock explains, “the concrete procedures have usually not even been determined yet”.
Berlin, North Rhine-Westphalia, and Hesse are already a step ahead. In North Rhine-Westphalia, for example, the state government is making 270 million euro available for citizens and social infrastructure facilities in addition to the federal funds. One-hundred-and-fifty-million euro are earmarked for people in acute need and social institutions that specifically care for these people, including food banks, homeless shelters, or counselling centres. It will also be used to finance free breakfasts for primary schools, or help people whose power is about to be cut off.
About 60 million euro from the fund is earmarked for the higher costs hitting facilities for integration assistance, including workshops for people with disabilities, as well as facilities that help people in particularly difficult situations according to § 67 of the German Social Code XII, such as people fleeing violence or who were recently released from the penal system. The remaining 60 million euro will go to helping day-care centres shoulder their rising energy costs.
Cities, municipalities, and districts along with regional associations in Westphalia-Lippe and the Rhineland are entitled to apply for the funds, which are to then be passed on to the facilities for additional costs stemming from the economic crisis. Applying for the funds to flow from the state treasury to the municipalities or regional associations looks at least somewhat manageable and unbureaucratic. That said, it remains to be seen whether and how the funds will be passed on to the facilities sufficiently and quickly.
Social Institutions Need More Help
Plenty of articles have appeared online about social infrastructure facilities in Germany closing, including facilities for the disabled and day-care centres, despite the need remaining high. In early January, the German commercial nursing home operator Curata filed for bankruptcy. As a result, four nursing homes are to close. The operators cited increased energy costs and staff shortages as reasons.
The Convivo Group, which provides care for about 18,000 people across Germany and employs about 4,800 staff, also announced plans to close. Here, too, operators point to a lack of skilled workers and increased costs, among other factors.
What Germany ultimately needs is a sensible regulation of old debts for affected municipalities and a restructuring of their financing basis.
But things aren’t quite that simple. The service sector union Ver.di points out that this bankruptcy also reveals the limits of nursing home operator Convivo’s business model, which recently underwent rapid expansion. Moreover, Germany’s system of commercialized care was in deep crisis even without the energy price crisis and inflation. “It’s not the first time we see that the orientation towards maximizing profits and good health care do not go together”, explains Ver.di executive board member Sylvia Bühler. She demands that care contracts only be concluded with non-profit or municipal care facilities.
Yet, even non-profit institutions have run into difficulties again and again, as shown by the insolvencies of nursing homes run by the German Red Cross homes in recent years. According to a recent report on the state of nursing homes in Germany, over one in five is currently threatened with bankruptcy. The problem is thus, on the one hand, nursing home operators geared towards making a profit, which also drags down wages, but also that socially important activities such as caring for relatives are not sufficiently financed with tax revenues — not to speak of raising additional revenue through higher wealth taxes. Instead, co-payments for care will continue to rise and widen the gap between those who can afford it and those who cannot.
Just the Tip of the Iceberg
Joachim Rock said that the Paritätische Wohlfahrtsverband predicts that the German public will only see “the tip of the iceberg” when it comes to closures or reduced services. “Facilities don’t necessarily go public when they cut back their services, because they want to show the outside world that they’re maintaining a high level of quality.” Thus, after a bit more time has passed, the confederation plans to conduct further surveys to get an overview of how energy price brakes and hardship assistance are working.
One thing is clear: the economic difficulties are hitting many German institutions and municipalities in a period that had already been difficult for years, and which has become even worse through COVID-19 and the disastrous flooding in the Ahr valley in 2021.
According to a 2022 report by the German promotional bank KfW, the total municipal investment backlog in Germany recently increased by another 10 billion euro to a total of 159 billion. Municipalities in decent economic shape may find it easier to support their social or cultural institutions with their own subsidies beyond possible federal and state aid, but help is hard to come by in places that have been in the red for years.
In addition to a different federal tax policy, which would also require consistently taxing the windfall profits made during the crisis (and is currently out of the question), what Germany ultimately needs is a sensible regulation of old debts for affected municipalities and a restructuring of their financing basis, as well as a different financial endowment for institutions providing social services for the general public.
Instead, it looks more like inflation will further exacerbate the country’s already deep social divisions.