Tough Road in Europe Creating New Bankruptcy Boom

The ongoing debt crisis in Europe continues to spread to the point where even the powerful German manufacturing sector is starting to take a hit. FCIB Global Conference Speaker Ludovic Subran, of Euler Hermes, noted this is likely to push bankruptcies much higher in a number of economies there.

Subran noted that projections show low growth, if any, in most European Union member economies over the next two years. As such, it leads to the question: How long can they survive these very low levels of demand? The answer for many companies simply is not very long.

"The rate of destruction of private companies is advancing," the economist told FCIB members and guests. "You have fewer and fewer companies. This includes very important links of the value chain that are disappearing...because some huge companies are going bust." He added there are many companies that rely overwhelmingly on some of these larger companies and intimated that a domino effect looms as a real and present danger.

Subran said that, by year's end, the projected increases in bankruptcies and/or other forms of business insolvencies is skyrocketing in places like Portugal (up 48% between 2011 and end of 2012), Greece and Spain (both 30%) as well as the Netherlands (25%). By contrast the average, per the Global Insolvency Index, is a 4% increase during the same period. Moreover, Subran said another 22% increase is expected in Spain between this year and 2013, with an 11% jump predicted for Italy and 10% for Greece. Granted, there are far fewer nations -- both in Europe and worldwide -- expected to outpace Euler Hermes' projected average insolvency pace through 2013 (3% increase among companies) than during the previous one-year period.

-Brian Shappell, CBA, NACM staff writer

Note: Look for more coverage this week here, through the FCIB Twitter feed (handle: FCIB_Global) and in NACM's eNews (available late Thursday afternoon).

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