EUROPEAN BUSINESSMEN who filed for bankruptcy used to be treated harshly. The word “bankrupt” derives from banco rotto, the practice in medieval Italy of smashing the benches that merchants sold their goods from if they did not pay their debts, to force them to stop trading. Until the mid-19th century defaulters were thrown into debtors’ prisons. Bankruptcy proceedings are now less violent, but in many European countries they mostly end in liquidation rather than restructuring.
The fear of multiple bankruptcies and mass unemployment because of measures imposed to contain the covid-19 pandemic is the main reason European governments are subsidising businesses on a vast scale. “No healthy company should go bankrupt because of corona,” promised Peter Altmaier, Germany’s economy minister, in mid-March when he announced extended credit lines, liquidity guarantees and grants for German businesses amounting to €750bn ($807bn). At the end of March the German government suspended insolvent firms’ obligation to file for bankruptcy until the end of September (and perhaps until March 2021)—provided they can prove their troubles were caused by covid-19. France, Spain and other European countries have introduced similar exemptions.
These emergency measures are buying time. Bankruptcies and unemployment have...
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This content was originally published by The Economist: Business. Original publishers retain all rights. It appears here for a limited time before automated archiving. By The Economist: Business