Economic Turmoil in Europe: Surge in Business Bankruptcies After 8 Years

Post-Pandemic Uncertainty and Government Support Cutbacks Fuel Record High Corporate Defaults in Europe

In the wake of the pandemic, the European business landscape is experiencing a tumultuous period characterized by a surge in corporate bankruptcies. The aftermath of the pandemic, coupled with the cessation of government support, has created an atmosphere of economic instability, leading to a significant rise in struggling enterprises across Europe. This trend has reached its peak after an unprecedented 8-year interval, as reported by the Wall Street Journal on the 17th of the month.

According to Eurostat, the statistical office of the European Union, the second quarter of this year saw an 8.4% increase in business bankruptcy filings compared to the previous quarter. Concurrently, new business registrations declined by 0.6% during the same period.

In terms of the bankruptcy index, the size of companies filing for bankruptcy in the second quarter reached 105.7 when compared to the base year of 2015, which was set at 100. Notably, this is the first time since the first quarter of 2015 (105.5) that the quarterly bankruptcy index has surpassed 100.

Industries such as accommodation, dining, and transportation have borne the brunt of the crisis, but the ripple effects of bankruptcies are evident across all sectors of the European economy. Eurostat explained that countries like Ukraine, impacted by Russia's aggression, and Baltic Sea nations are at the forefront of bankruptcy filings.

Hungary leads the surge in bankruptcies with an alarming 41% increase.

Economists are warning that a combination of economic turmoil, inflation, and rising borrowing costs due to interest rate hikes is aligning with the termination of government aid, which had previously supported struggling companies' survival in recent years, as highlighted by the WSJ.

Observers note that companies, already grappling with difficulties even before the pre-COVID-19 era, are now facing even greater challenges due to the worsening economic conditions. Christoph Niering, leading the German Association for Insolvency Administration, remarked, "The market is showing signs of instability," adding that while governments had extended lifelines amid the pandemic and the conflict in Ukraine, "slow destruction is now beginning."

Even in Germany, the economic powerhouse of the EU, Galeria, a major department store chain, has submitted and received approval for restructuring plans involving the closure of over 100 domestic stores in the early months of this year. Additionally, Gary Beaver's German subsidiary plans to shutter 122 out of 171 stores. The IFO Institute for Economic Research in Munich reported a consecutive 3-month decline in Germany's business confidence index, stating that businesses disappointed with the current state of affairs are adjusting their future performance expectations downward. This analysis has led to the conclusion that "the German economy is progressively dimming."

However, some scholars argue that despite the stark rise in bankruptcies, the current situation still falls short of the levels observed during the peak of the global financial crisis, providing a glimmer of comparative stability.