Government intervention

As said earlier, massive government intervention to offset the effects of the loss of business linked to containment measures is likely to limit the future number of bankruptcies. To get a consistent comparison between countries, this argument can be grasped by using sector accounts and measuring the loss of disposable income for the three main sectors of the economy (households, businesses and government).[1].

At the level of the euro zone as a whole, Chart 3 is unequivocal: while the loss of disposable income of companies is, as a percentage of GDP, broadly the same in the financial crisis and the Covid crisis (which will be decisive in terms of bankruptcies), it is in fact the public administrations that have suffered the greatest loss of income, which is both an illustration of the fall in tax revenues, but also of transfers to other sectors of the economy. economy as part of the support measures.

There is, in fact, a double argument here. By supporting household incomes in a context where it was not possible to consume, governments increased the capacity of households to consume when economies reopen, which should boost economic recovery and support the sectors most affected by containment measures, and therefore the most at risk of bankruptcy. And by supporting corporate income, this is likely to have had a direct impact on the financial health of companies and also argues for a limited impact on bankruptcies, or at most similar to what was observed during the crisis. financial.

In all of the countries in our sample, the government bore the brunt of the overall loss of disposable income. However, the measures taken have not made it possible to offset all the effects of the crisis everywhere. There is a loss of household income in 2020 in Greece (very limited), Spain, Italy and Austria. In these countries, a consumer-led recovery could be weakened and thus increase the bankruptcy rate in sectors related to household consumption, despite the economic reopening. The loss of disposable income of companies appears particularly significant (more than two percentage points of GDP) in Spain, Greece and France, which means that companies have suffered more in these three countries, increasing the risk of bankruptcy.

How could these countries have suffered such a loss of disposable income for businesses? The loss of operating surplus (the money that a company earns from its main activity) was indeed the largest in these countries (Chart 5), but after the effect of net capital income and transfers paid and received (including aid received in the context of the crisis) is added, the loss of disposable income remains significant. The cases of Portugal and Belgium are interesting in this respect: the loss of operating surplus also exceeds two points of GDP, but once the corrections are applied, the drop in disposable income is much smaller. It seems that in these cases, the measures taken by governments have better cushioned the shock.

Given the cumulative effect of household and business income losses on the risk of bankruptcy, Spain, Greece and Italy appear to be the most fragile economies, while the Netherlands, Finland, Ireland and to a lesser extent Austria are apparently in a more comfortable situation.

[1] The disposable income of a sector is made up of its so-called primary income (activity income and net income from capital) and its secondary income. The latter is the difference between the transfers received (social benefits, subsidies, etc.) and the transfers paid (taxes, social contributions, etc.).