Bankruptcy Filings Skyrocket across EU at Fastest Rate since Records Began

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Bankruptcy Filings Skyrocket across EU at the Fastest Rate since Records Began

The number of bankruptcy filings for businesses in the EU soared to the highest level since records began.

Struggling “zombie” companies kept alive by government handouts during the COVID-19 pandemic are now collapsing at an alarming rate.

According to Eurostat, the EU statistics office, bankruptcy filings soared by nearly 27 percent compared with the previous quarter of 2022.

The number has now reached the highest level in any three-month period since data started being collected in 2015.

After two years of falling insolvencies, the clear breaking point comes amid worsening conditions due to soaring energy prices and higher financing costs.

Chief economist at German insurer Allianz, Ludovic Subran, said: “There are a lot of companies that were given a free pass during all of 2020 and 2021 when they didn’t even have to pay some of their creditors, such as social charges in France.”

“These fallen angels, or companies that can barely manage, are now facing less support, with increased financing and wage costs, and it is becoming completely untenable,” he said.

Meanwhile, in Spain, bankruptcy filings jumped considerably, more than doubling in the second half of last year due to the country’s insolvency law enabling companies to restructure their debt more easily.

Naked Capitalism writer, Nick Corbishley, warned in August 2022 that the EU’s self-inflicted energy crisis would tip small businesses over the edge:

After reeling from one crisis to another, Europe’s heavily indebted and deeply debilitated small businesses — the backbone of the economy — face the ultimate threat from energy shortages and soaring prices.

With the specter of stagflation looming large over Europe and the price of energy rising at a blistering pace, hundreds of thousands, perhaps even millions, of small businesses face the grim prospect of closure this winter. In the UK, much of the news cycle in recent weeks has been dominated by the plight of struggling families grappling with surging energy bills. But many businesses are, if anything, in an even worse pickle, since they don’t have price caps on the energy they pay. Some business owners are facing an increase in bills of more than 350%.

Across Europe small and medium-sized businesses (SMBs), particularly in sectors like travel and tourism, culture and hospitality, have borne much of the brunt of the economic fallout of the pandemic. The stimulus packages — including furlough programs, debt moratoriums and low-interest emergency loans — helped to tide over many (but not all) of the worst-hit businesses but that support has ended. Meanwhile many of the economic problems spawned by the pandemic, including supply chain bottlenecks and labor shortages, continue to linger. Energy shortages and surging prices are likely to be the final straw.

But in the absence of state support, many companies are collapsing, with an overall bankruptcy filing increase of 35 percent between last year’s first and second half.

Eurostat said the most significant increase in EU insolvencies in the fourth quarter was in the transport, storage, accommodation, and food services sectors, which rose 72 percent and 39 percent respectively from the previous quarter.

French bankruptcy filings jumped by nearly 16 percent in the second half of 2022 following the end of pandemic relief measures.

Chief economist at the EU employers’ federation BusinessEurope, James Watson, said: “There is clearly a factor of governments withdrawing support introduced during the pandemic and that is having an impact.” 

“There is also something else going on, as it is becoming an increasingly difficult trading environment for many companies due to high inflation, weak growth, and rising interest rates,” he added.

READ MORE: IEA Chief: ‘The World Is in Middle of the First Truly Global Energy Crisis’

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