Germany, Switzerland And Austria Hit By Wave Of Insolvencies

The figures are getting worse: Germany, Austria and Switzerland are reporting record insolvency figures for the first half of 2024. The blame is being placed on the "crises" of recent years: Covid-19, Ukraine war, energy supply. In a healthy economy, insolvencies are necessary for a market economy to achieve its high level of efficiency. Here, market exits provide better opportunities for competitors and start-ups. However, in view of the high national debt and overpriced location costs, this is currently out of the question. It is to be feared that the exploding social costs caused by the insolvencies will bring the states further to their knees.

The situation is particularly dramatic in Europe's largest economy. The number of insolvencies in Germany has risen faster than forecast. In the first half of 2024 alone, 162 companies with a turnover of more than ten million euros were affected - an increase of 41% compared to the same period last year.[1] Well-known companies such as the tour operator FTI, the Galeria department stores' chain and the fashion company Esprit are making headlines. However, property companies, automotive suppliers and mechanical engineering firms have been hit the hardest. The situation is also dramatic in the construction industry, where companies recorded a drop in turnover of almost 60% in spring compared to 2021[2].

The Swiss economy is also groaning under the weight of insolvencies: 5619 companies went bankrupt between January and June. The number of private bankruptcies is also on the rise. This is remarkable in that Swiss companies traditionally have robust financial buffers and larger liquidity reserves that bridge short-term bottlenecks and provide stability in times of economic uncertainty.

In Austria, 2,098 corporate insolvencies were opened in the first half of 2024, an increase of around 35% compared to the previous year and the highest figure in 15 years.[3 ] In addition to numerous other circumstances, the massive government subsidy policy during the Covid-19 pandemic is having a negative impact in retrospect. These measures, such as short-time working and direct financial aid, have kept many companies artificially alive. This has delayed necessary structural adjustments and impaired the competitiveness of the economy in the long term.

Into the crisis with eyes wide open

At the end of 2020, the German Ministry of Economic Affairs was still confident that the extensive fiscal and monetary policy measures in the EU and its member states would be sufficient to cushion the effects of the crisis. It boasted that it had put together one of the largest aid packages to support the economy thanks to a solid budgetary situation.[4] Even at the time, critics pointed out that this "solid budgetary situation" was built on sand.

All responsible politicians, whether in Brussels, Bern, Berlin or Vienna, were well aware that the ECB's loose monetary policy was virtually an invitation to run up huge debts. In addition, the Commission considerably relaxed the debt rules in the wake of the pandemic and the war in Ukraine and has only now tightened them again. This is one of the reasons why France, Italy, Belgium, Poland, Hungary, Slovakia and Malta have been placed under stricter supervision because they have excessive budget deficits[5].

The clocks are ticking differently now, and the politicians responsible must have been aware of this at all times. Germany in particular is suffering from a completely misguided climate policy that makes energy costs the most expensive in the world. In addition, there is increasing neo-dirigism, not only in Germany but also in Austria. State institutions are increasingly intervening in economic activity with price regulation, social transfers and redistribution. Switzerland is (still) putting up a brave fight, but will not be able to escape this trend in the long term due to its diverse economic interdependencies. Most recently, an initiative by the Swiss Young Socialists to introduce an inheritance tax of 50 % made the headlines. According to a recent survey by management consultants PWC, 57% of family businesses are therefore considering leaving Switzerland[6].

In none of the three countries can we speak of a healthy market exit of companies. In view of the high national debt (Switzerland is an exception here) and the overpriced location costs (Switzerland is the leader here), it is to be feared that the exploding social costs caused by the insolvencies will continue to place a heavy burden on the states. A further massive rise in unemployment can be expected by winter at the latest.


This article was first published in Courrier des Stratèges on July 16th, 2024.

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[1] https://www.handelsblatt.com/unternehmen/management/insolvenzen-zahl-der-firmenpleiten-ist-hoeher-al...

[2 ] https://www.augsburger-allgemeine.de/wirtschaft/insolvenzen-in-deutschland-diese-branche-trifft-es-b...

[3] https://orf.at/stories/3363612/

[4 ] https://www.bmwk.de/Redaktion/DE/Schlaglichter-der-Wirtschaftspolitik/2020/12/kapitel-1-6-wie-gross-...

[5 ] https://www.handelsblatt.com/politik/international/staatsschulden-eu-kommission-eroeffnet-defizitver...

[6] https://www.handelszeitung.ch/politik/laut-studie-will-jeder-zweite-unternehmer-die-schweiz-verlasse...