Zombies or just sleeping? German insolvencies fall despite pandemic
BERLIN (Reuters) – The number of firms declaring insolvency in Germany was 6.2% lower than in the first half of last year despite the coronavirus crisis, the Statistics Office said, partly because of a rule designed to keep firms afloat in the pandemic.
In March, the government gave companies that find themselves in financial trouble due to the pandemic a respite by allowing them to delay filing for bankruptcy. That was later extended until the end of the year.
The fact that insolvency numbers fell even as Europe’s largest economy shrank the most in its post-war history will lend ammunition to critics who say that suspending compulsory insolvencies is merely keeping afloat “zombie companies” whose collapse has merely been delayed, not prevented.
There were 9,006 corporate insolvencies in the first half of 2020, a sixth of them in the retail sector, which was especially hard-hit by lockdowns to stem the virus’s spread. Construction and hospitality also notched up more than 1,000 insolvencies.
Companies that had declared insolvency had total estimated debts of 16.7 billion euros, up from 10.2 billion euros in the first half of 2019.
“The economic pain many companies have suffered in the coronavirus crisis is not so far reflected in the number of declared insolvencies,” the Office said on Thursday. “One reason is that the obligation to declare insolvency has been suspended since March 1.”
Germany’s economy shrank by an unprecedented 9.7% in the second quarter, a contraction that without government countermeasures would ordinarily have been accompanied by a wave of bankruptcies and mass unemployment.
Defenders of the insolvency protection measures say they have helped spare Germany a yet more serious dip in economic output and helped prevent a disastrous spike in unemployment.
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