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POLICY BRIEF

Will corporate debt choke the post-COVID-19 recovery?






Economic governance / POLICY BRIEF
Frederico Mollet

Date: 25/01/2021
Europe’s economic recovery is threatened by the corporate debt overhang created in the wake of the pandemic. Even as vaccines roll out, Europe faces the prospect of a prolonged retrenchment as indebted firms pull back investments and repair their balance sheets.

Insolvency procedures have gradually improved over the past decade in Europe, but decisive and swift public action is needed to take advantage of these reforms. Given the scale of the crisis, Frederico Mollet argues in favour of a comprehensive European restructuring strategy. EU member states and the Commission must step in to provide the resources, guidance, and coordination necessary to push through this monumental restructuring.

This strategy would furthermore benefit from common European guidelines and criteria for creditors and debtors. It will not only increase the likelihood of success but also protect the level playing field.

Lack of a clear strategy and coordinated approach will result in a drawn-out restructuring process that pushes too many viable firms into liquidation and permanently hampers the economic recovery. Centring on private restructurings would also minimise the use of public funds at a time when governments have to deal with multiple competing fiscal pressures.


Read the full paper here.
Photo credits:
SCOTT HEPPELL / AFP
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