Large-scale cash injections into the EU economy and business assistance provided by European governments during the coronavirus pandemic probably turned out to be beneficial to the so-called “zombie companies.” Bloomberg reports this with reference to the head of the EU competition department Olivier Gersen.
We are talking about public companies, which are at least 10 years old and whose interest payments on loans exceed earnings before interest and taxes. In other words, “zombie companies” are businesses that constantly need financial infusions to keep going.
As explained by Gersen, usually European regulators make sure that financial assistance does not go to unprofitable companies. However, the restrictions were eased last year. As a result, state support, among others, was received by enterprises that in a standard situation could not count on cash injections. As a result, in many EU countries, the bankruptcy rate in 2020 was lower than in previous years, Gersen said.
In November, the agency wrote that because of such “zombie companies” the US economy was under threat. Of the country’s 3,000 largest public enterprises, at least 200 have joined the zombie ranks since the start of the pandemic. During this time, unprofitable firms have accumulated $ 1.4 trillion in debt.