Europe braces for wave of insolvencies

The European Union is facing a surge in bankruptcies and bad loans once the post-pandemic economic recovery starts to take hold and governments begin withdrawing state schemes that are keeping many firms on life support, according to an EU document seen by Reuters.

The note, prepared for eurozone finance ministers’ talks, said it was thanks to almost €2.3 trillion in national liquidity support measures that European governments had so far staved off a rise in insolvencies.

Without such help and new loans from banks, almost a quarter of EU companies would have had liquidity problems by the end of 2020 after exhausting their cash buffers because of the economic havoc wreaked by the Covid-19 pandemic.

“Once the unprecedented public support measures expire, a number of businesses are likely to default on their debt obligations, leading to higher non-performing loans and insolvencies,” it said.

A rise in insolvencies could spark supply chain disruption, according to the Allianz Risk Barometer 2021. 

According to Philip Beblo, global practice group leader, Utilities & Services, IT Communication at AGCS. “The economic effects of coronavirus could affect demand while suppliers could file for bankruptcy. Cyber risks will also be a more significant source of business interruption risk going forward, as the pandemic has hastened digitalisation and remote working.”

According to Euler Hermes’ global insolvency index, bankruptcies will surge by +25% year on year globally in 2021 and by +29% in the eurozone, mostly due to a base effect. In 2022, insolvencies should increase by +12% worldwide and +17% in the eurozone, it predicts.