In the countries of Western Europe, the number of corporate insolvencies has increased significantly. This is shown by figures from the credit report Creditreform for the past year from 14 major member states of the European Union as well as Norway, Great Britain and Switzerland. In all these countries, a total of 2022,140 business insolvencies were registered in 000, almost a quarter more than in the previous year.
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Business correspondent for Austria and Hungary based in Vienna.
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During the pandemic years of 2020 and 2021, there were exceptionally few corporate insolvencies because governments distributed generous coronavirus aid and suspended the obligation for distressed companies to file for bankruptcy. Now, however, corporate insolvencies have risen to their highest level since 2019.
The increase was particularly strong in Austria with almost 60 percent, followed by Great Britain and France (see chart). At just under four percent, Germany recorded the lowest increase in insolvencies. Insolvencies have fallen sharply in the southern European countries of Greece, Italy and Portugal. Where do the significant differences between countries come from – and is Europe's economy now facing a major wave of insolvencies?
Aid that is too generous will later take its revenge
Patrick-Ludwig Hantzsch, Head of Economic Research and Public Relations at Creditreform, speaks of not a wave of insolvencies, but of a trend reversal and normalization. In the past, Creditreform had already pointed out that the special state of affairs with unusually low insolvency figures would not last. Due to the far-reaching state aid for companies during the Corona pandemic, insolvencies literally collapsed during this period.
Hantzsch counts not only the Corona loans or the suspended obligation to file for insolvency as part of the aid, but also the short-time work allowance, which is popular in Germany, for example. But as the pandemic subsided, the invasion of Ukraine by Russian troops was immediately followed by the next crisis. This permanent crisis is now materializing in rising insolvency figures. However, it is still a long way from the highs at the time of the financial crisis in 2008 and afterwards.
However, the insolvency statistics of different countries are not easily comparable. In principle, companies have to file for bankruptcy if they run out of money or the debts grow over their heads so that creditors can get at least part of their claims back in a fair trial. However, the details are regulated differently depending on the country. In addition, there are differences in statistics. In Italy, for example, agricultural insolvencies are not classified as business insolvencies. In southern Europe, many companies do not leave the market due to insolvency, but simply close their business or shop. Statisticians refer to this as the phenomenon of "silent homecomers".
According to Creditreform, the increase in insolvencies can be observed across all major sectors of the economy. Not only the construction industry, trade or the service industry are affected, but also the manufacturing industry. Accordingly, industry is apparently unable to fulfil its role as an anchor of stability in crises.
Austria experiences blue insolvency miracle
The increase is particularly strong in countries that previously kept many companies afloat. This can be seen, for example, in Austria. According to experts, the fact that the neighbouring country is landing on the inglorious top spot in Western Europe with an increase in insolvencies of almost 60 percent is also due to the generous subsidies in the wake of the Corona pandemic. No other EU country has spent so much aid to combat the consequences of the pandemic: 1475 euros of taxpayers' money per citizen in 2020, according to data from the statistics agency Eurostat. On average in the EU, it was only 325 euros, in Germany 451 euros.
The Austrian companies subsidized in this way were apparently unable to overcome the supply chain problems that arose after the pandemic and the energy crisis. According to calculations by the census authority Statistics Austria, there were 2022 cases of insolvency in 4750. In 2019, there had been 4887. For this year, however, experts expect an increase.
The number of private insolvencies has also risen significantly in Austria. With 8176 cases, there were 13.1 percent more private debt settlement proceedings in the past year than in 2021, according to the analysis of the creditor protection association KSV from 1870. The average debt per insolvency was around 111,000 euros.
Due to rising energy prices and material costs as well as the worsening shortage of skilled workers, Creditreform expects a further gradual increase in insolvencies in Germany. Harbingers of this development in Germany were the insolvencies of the department store chain Galeria Karstadt Kaufhof, the shoe store chains Görtz, Salamander and Reno or the textile manufacturer Gerry Weber. Brick-and-mortar retail is facing major problems because many customers have not found their way back to stores after the pandemic.