BERLIN (Reuters) - Even as the European economy slumps into its deepest recession in modern history, the number of bankruptcies across the continent has fallen sharply as government subsidies and a temporary loosening of insolvency rules keep companies afloat.
FILE PHOTO: A sign with distancing and entry rules, is seen at the entrance of a shop, as the spread of the coronavirus disease (COVID-19) continues in Berlin, Germany, April 28, 2020. REUTERS/Axel Schmidt/File Photo
During the first half of 2020, countries including Britain, France and Spain saw insolvencies fall by an estimated 20-40%year-on-year, official and private sector data show.
But as the region implements new restrictions to control a fresh rise in COVID-19 infections, the question for governments is whether to preserve jobs at the risk of creating a generation of debt-laden zombie firms with no real future.
For now, it seems a risk they believe worth taking.
In Germany, Europes biggest economy, there was a 6.2% year-on-year drop in insolvency filings in the first half after the government temporarily waived a filing obligation. By contrast, U.S. Chapter 11 bankruptcy filings rose 26%, according to legal-services firm Epiq Systems Inc.
Now, Berlin plans to give troubled firms yet more leeway.
Local critics say the first-half fall in insolvencies is proof in itself the state has done more than enough and now risks impeding what economic liberals hail as creative destruction, the term popularised in the 1940s by Austrian economist Joseph Schumpeter to describe unviable firms folding to make way for more dynamic newcomers.
But the issue is knowing how to distinguish the zombies generally defined as companies which would anyway struggle to cover their interest payments from basically healthy firms that have run into temporary trouble.
Jan-Marco Luczak, legal and consumer spokesman for Angela Merkels conservative CDU/CSU, said it was good and right that the government helped businesses quickly and without red tape.
But it is also clear that we must not permanently switch off the self-cleaning process of the market, he told Reuters. Companies that are not healthy and have no economic prospects independently of corona must exit the market.
Germanys Federal Statistics Office confirms the drop in insolvencies was directly facilitated by government measures, including allowing firms to delay filing for bankruptcy until the end of September, now extended to the end of the year.
A new draft reform, which would take effect at the start of 2021, envisages extending the deadline for firms to file for insolvency to six from three weeks while also giving them the opportunity to terminate onerous contracts.
The company is given a wide margin of manoeuvre in drawing up the restructuring plan, organising the negotiations and conducting the vote on the restructuring plan, the Justice Ministry said of the proposals in a written statement sent to Reuters.
That has raised alarm bells with the IDW Institute of Public Auditors, which is calling on the government to press struggling companies to restructure earlier, rather than when they face a real threat of insolvency.
(Graphic: German insolvencies fall during lockdown - )
Jens Weidmann, president of Germanys national central bank and a known fiscal hawk, also has concerns.
He acknowledges the balancing act involved in countering the pandemics economic fallout with state support measures but, in a speech this month, highlighted the potential to kick-start what many would see as a long overdue structural change in Germanys economy away from its reliance on the industries of the last century. The auto sector is one such example.
Digital transformation could get a real boost, he said, giving one example of the creative destruction that pro-market advocates are seeking.
Berenberg Bank economist Holger Schmieding said the government was not yet impeding corporate renewal, but was at risk of doing so.
In this unusual and unusually deep recession, it makes sense to slow down the process of destruction.
Over the course of next year, the balance will shift, he added. Extending the moratorium on insolvency proceedings into next year would be wrong, in my view.
Credit insurance and debt collection group Atradius estimates a 26% rise in insolvencies globally this year as governments start to phase out support schemes. However it predicts that any increase in the second half will be much lower in Europe than elsewhere.
The Paris-based Organisation for Economic Cooperation and Development (OECD) last week urged governments to review and refocus pandemic support measures as the recovery progresses.
Failure to do so could hinder the recovery by trapping resources in non-productive firms and jobs, reducing prospects for shifting jobs to more productive and higher-paid ones, it said.
In Spain, one of hardest hit European countries both economically and in health terms, some 130 leading economists are urging the government to fine-tune employment protection schemes to avoid non-viable companies being subsidised.
It is key to avoid problems of incentives that could delay the revival of the economy and the reallocation of workers towards more productive enterprises, they wrote.
Britain is taking a different tack. While it has announced a wage subsidy scheme modelled loosely on Germanys long-running Kurzarbeit short-time work programme, Finance Minister Rishi Sunak has made it clear the initiative a much less costly replacement to furlough measures expiring next month - was not intended to save jobs that were not viable in the long term.
Additional reporting by Belen Carreno in Madrid; Editing by Kirsten Donovan
Read more from the original source:
ANALYSIS-Rise of the zombies? Europe faces insolvency balancing act - Reuters
- Aisle of the living dead: Zombie brands haunt CPG - The 21st Century Supply Chain - Perspectives on Innovative - October 28th, 2020
- Thai woman takes social media by storm after dressing up as zombie to sell clothes of dead - The Indian Express - October 28th, 2020
- Jason Stevenson: The zombie virus is already here - Salt Lake Tribune - October 28th, 2020
- Colorado arborists are getting reports of 'zombie trees' around the state - 9News.com KUSA - October 28th, 2020
- Monstrum Host Dr. Emily Zarka Talks Zombies, Halloween, and the Ugly Truth Behind Monsters - ComicBook.com - October 28th, 2020
- Zombie-trees invading Colorado as October draws to close - OutThere Colorado - October 28th, 2020
- Thai zombie seller cashes in on threads of the dead - Metro US - October 28th, 2020
- Which Type Of Zombie Are You, Based On Your Zodiac? | ScreenRant - Screen Rant - October 25th, 2020
- Rob Zombie to share taster of long-awaited new album next week - NME - October 25th, 2020
- Sing Along To The Cranberries Zombie With New Lyric Video - uDiscover Music - October 25th, 2020
- Stubbs the Zombie Makes YOU the Undead Brain-Eater | CBR - CBR - Comic Book Resources - October 25th, 2020
- Annual 'Thirller' zombie dance in the street gives sense of normalcy in 2020 - Statesman Journal - October 25th, 2020
- Halloween Is Coming To Call Of Duty: Warzone With Zombies Royale, Free Rewards And Much More - Forbes - October 25th, 2020
- Rob Zombie's Halloween: 37 Things You Didn't Know About The Slasher Remake - GameSpot - October 25th, 2020
- Zelter Is A New Zombie Action Adventure Available On Steam Early Access - Happy Gamer - October 25th, 2020
- MicroProse goes Tactical RPG in the zombie apocalypse with Urban Strife - Gamasutra - October 23rd, 2020
- From Zombie to Jolene, Miley Cyrus is the queen of cover songs - Dazed - October 23rd, 2020
- Zombies coming home this weekend in... - Issaquah Reporter - October 23rd, 2020
- Zombie/Blinkink, adam&eveDDB, TEMPTATIONS Team On Horror Movie For Cats - SHOOT Online - October 23rd, 2020
- Zombie knife found by police and volunteers searching parts of Swindon | ITV News - ITV News - October 23rd, 2020
- Make the wasteland terrifying with these Halloween Fallout 4 mods - PC Invasion - October 23rd, 2020
- The Walking Dead Has Finally Made The Zombies An Afterthought - Screen Rant - October 22nd, 2020
- Did You Know The Militray Has A Plan In Case of A Zombie Apocalypse? - KSOO News - October 22nd, 2020
- This New Cereal Is Made With Adaptogens to Help You Relax, and We'll Take 5 Bowls! - POPSUGAR - October 22nd, 2020
- Kevin O'Leary says give stimulus to the people who need it, not 'zombie companies' - CNBC - October 22nd, 2020
- This Zombie-Themed Wedding Shoot Proves True Love Never Dies - POPSUGAR - October 22nd, 2020
- ShackStream: Talking Zelter & lighthearted zombies with the devs - Shacknews - October 22nd, 2020
- 'It's like The Walking Dead' - Readers reaction as man poos in 'zombie-town' Hanley in the middle of the day - Stoke-on-Trent Live - October 22nd, 2020
- 'Walking Dead' Boss Addresses the State of the Zombie Apocalypse - Hollywood Reporter - October 20th, 2020
- Urban Strife sounds like Jagged Alliance 2, but it's infested with zombies - PC Gamer - October 20th, 2020
- 5 Zombie Movie Scenes That Prove Slow Zombies Are Scarier (& 5 That Prove Fast Zombies Are) - Screen Rant - October 20th, 2020
- The Marvel Zombies Just Turned One Of The X-Men Into A Multiversal Weapon - Screen Rant - October 20th, 2020
- The Walking Dead Onslaught Update Aims to Rebalance Weapons, Zombies & Combat - Road to VR - October 20th, 2020
- Zombies Ate My Neighbors! Is the Charming, Spooky, Retro Shooter You Need to Play - CBR - Comic Book Resources - October 20th, 2020
- Zombie Army 4 Is Headed To The Damnation Valley - Bleeding Cool News - October 20th, 2020
- REMINDER: The virtual Zombie Fest will be Saturday, Oct. 24! - The B-Town (Burien) Blog - The B-Town Blog - October 20th, 2020
- Marvel Zombies: The Origin of The Virus is Finally Revealed - Screen Rant - October 20th, 2020
- Kirk Hammett: Zombie movies are old and tired - pdclarion.com - October 20th, 2020
- ANZ chairman John Key warns against creating 'zombie companies' and 'an asset bubble that's going to burst on us' - Interest.co.nz - October 20th, 2020
- UFC Fight Night results, highlights: Brian Ortega shines in return to action with decision over Korean Zombie - CBSSports.com - October 18th, 2020
- Watch Miley Cyrus raucous cover of The Cranberries classic Zombie - NME - October 18th, 2020
- Marvel Zombies Shows What REALLY Happened to Franklin Richards - CBR - Comic Book Resources - October 18th, 2020
- The Walking Dead: 10 Things About The Zombies That Don't Make Sense - Screen Rant - October 18th, 2020
- Kirk Hammett: Zombie movies are old and tired - The Daily Courier - October 18th, 2020
- Does Spider-Man Have What It Takes To Kill Zombie Mary Jane? - Screen Rant - October 18th, 2020
- UFC Fight Night: Ortega vs The Korean Zombie- Katlyn Chookagian vs Jessica Andrade: Prediction and Analysis - EssentiallySports - October 18th, 2020
- UFC Fight Night: Ortega vs The Korean Zombie Thomas Almeida vs Jonathan Martinez: Prediction and A ... - EssentiallySports - October 18th, 2020
- They're Back From The Grave and Ready to Party! Zombies Take the Time Warp Drive-In - Memphis Flyer - October 17th, 2020
- PUBG Mobile will be infested with zombies again in the new Halloween event - re:Jerusalem - October 17th, 2020
- Creepies, Zombies, and Monsters: Candidates to Avoid Recruiting - ClearanceJobs - October 17th, 2020
- Creepy and kooky, all together spooky at Six Flags Discovery Kingdom - Vallejo Times-Herald - October 17th, 2020
- This Horrible Zombie Is What Happens When You Give Your King Every Possible Disease In Crusader Kings 3 - TheGamer - October 17th, 2020
- All 23 Zombie Movies And TV Shows Available On Netflix This Halloween - We Got This Covered - October 17th, 2020
- Two arrested in Melksham after zombie knife discovered in car - The Wiltshire Gazette and Herald - October 17th, 2020
- Why House Of 1000 Corpses Is The Best Movie In Rob Zombie's Firefly Trilogy - Screen Rant - October 17th, 2020
- No Drama For Korean Zombie - The Official Website of the Ultimate Fighting Championship - October 15th, 2020
- Saving the smartphone zombies from themselves - ITS International - October 15th, 2020
- 5 Reasons Slow Zombies Are Scarier Than Fast Zombies (& Vice Versa) - Screen Rant - October 15th, 2020
- From fleeing zombies to a heart-warming drama; how the Langley Seniors Centre got into the movie business - Aldergrove Star - October 15th, 2020
- The Walking Dead: World Beyond goes up in a Blaze of Glory - SYFY WIRE - October 15th, 2020
- Fear The Walking Dead: Morgans Zombie Immunity Explained - Screen Rant - October 15th, 2020
- Trickbot and its one million zombie computers: US election under threat? - FRANCE 24 English - October 15th, 2020
- Mom Shamed For Zombie Skittles Goes Viral What Are Zombie Skittles? - Fatherly - October 15th, 2020
- Hope and the zombie trope in the time of Corona - Varsity Online - October 15th, 2020
- There Was Almost A Ninth Halloween Movie Before Rob Zombies Remake - We Got This Covered - October 15th, 2020
- Marvel Zombies: The End of the World Is Blade the Vampire's Happy Place - CBR - Comic Book Resources - October 10th, 2020
- Rubn Blades, of "Fear the Walking Dead," talks zombies, reinvention and Latino 'respect' - NBC News - October 10th, 2020
- The Walking Dead: World Beyond Clip Introduces A New Zombie Type! [EXCLUSIVE] - Screen Rant - October 10th, 2020
- How COVID-19 Shaped a New Zombie Process for Actors on 'The Walking Dead' - Backstage - October 10th, 2020
- 5 reasons zombies couldn't defeat the U.S. military - We Are The Mighty - October 10th, 2020
- Zombie themed paintball course taking over Commando Paintball Sports this Halloween - WeAreGreenBay.com - October 10th, 2020
- Zombies & 9 More Horror Movie Threats Weve Seen Too Many Times - Screen Rant - October 10th, 2020
- Ray's The Dead Brings Ghoulish Zombies, Black Humor, and the Horrors of the 80's to PlayStation 4, PC on October 22 - Gamasutra - October 10th, 2020
- The Marvel Zombies Phalanx 'Vaccine' May Be Worse Than the Disease - CBR - Comic Book Resources - October 10th, 2020
- Ray's The Dead Is A Pikmin-Inspired Zombie Adventure, And It's Coming To Switch - Nintendo Life - October 10th, 2020
- An autopsy of zombie firms reveals growing and recovering companies - USAPP American Politics and Policy (blog) - October 10th, 2020
- Attack of the zombie companies - Small Caps - October 10th, 2020
- How To Kill Zombie Processes on Linux - Linux Journal - October 10th, 2020
- Everything We Know About Warzone's Zombie Royale | TheGamer - TheGamer - October 10th, 2020
- Chosen One of the Day: Michael Myers, tbh - SYFY WIRE - October 10th, 2020
Reviewed and Recommended by Erik Baquero