June 15, 2021

For the State, the bill for EMPs will be less important than feared

Do the 140 billion euros in loans guaranteed by the State granted to companies to overcome the crisis constitute a real time bomb for the economy, because of the risk of bankruptcies and unpaid debts? A note written by researchers at the Institute of Public Policy (IPP) and published Wednesday, June 9 largely relativizes the risks traditionally associated with EMPs. On the contrary, according to its authors, this measure “Seems to have protected its beneficiaries from bankruptcies which otherwise would have been inevitable”. And given the prospects for economic recovery, the risk of seeing a large number of companies being unable to repay their loans is limited, underline the four economists who signed the note, Laurent Bach, Nicolas Ghio, Arthur Guillouzouic and Clément Malgouyres.

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“In the short term, at least, our diagnosis is rather reassuring”, summarizes Arthur Guillouzouic. “Certainly, the loans taken out by companies have increased their gross indebtedness. But it seems that companies have taken out these loans on a massive scale as a precaution in an extremely uncertain context. Instead, they used them as insurance, without spending cash. “ To reach these conclusions, the IPP researchers examined the balance sheets of listed companies that benefited from PGEs, as well as those of companies that closed their accounts before December 31, 2020.

“Such a magnitude”

The massive nature of the loans guaranteed by the State – nearly 680,000 businesses have benefited from them, i.e. one in three businesses, ten times more than during the 2008-2009 crisis -, the amount of sums committed and the context of the crisis may indeed give a cold sweat to the banks, which assume 10% of the risk, as to Bercy, which assumes 90%. “These loans have grown to such an extent that it has been feared that for a large part of companies, the debt load will quickly become unsustainable”, admits the note of the IPP.

Philippe Brassac, President of the French Banking Federation and Managing Director of Crédit Agricole, had he not estimated, in mid-January 2021, that 5% to 10% of companies having taken out one of these loans might not be able to meet their deadlines? In mid-May, an information report from the Senate Finance Committee expressed alarm at “Possible cascading effects linked to EMPs”, combining failures of companies unable to repay their debt, fall in investments and increase in bad debts for banks. The ultimate and dreaded scenario being that a financial crisis will be added to the crisis linked to Covid-19.

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