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Why are there less companies insolvencies in Germany?

Why are there less companies insolvencies in Germany?
Panorama company insolvencies - Autumn 2012

Although the overall number of insolvencies continues to decline (-1.8% between September 2011 and August 2012), the summer of 2012 confirms the trend that began last Spring with an important growth in their cost (+17%) and a correlative increase in unemployment (+3.3%). The barometer presented in this panorama analyses this development, principally caused by the difficulties of larger French companies. A list is also given of the riskier sectors, those where risks are deteriorating and those which have been relatively spared.
This panorama includes an article which attempts to answer the following question: why does Germany have half the insolvencies of France? The sound financial health of its companies is an evident first explanation. However, German companies benefit from stable sources of external financing even during periods of financial turbulence, and from an insolvency law that encourages entrepreneurs to manage their company in a prudent manner at earlier stages.
But we should not think that German companies are totally sheltered: the increased number of insolvencies in the coming months is a scenario which cannot be excluded, because, from a statistical point of view, German insolvencies are very sensitive to the dynamics of exports.


Barometer of companies insolvencies in France

Warning on insolvencies: the rising cost of insolvencies is escalating, with a 17% increase between September
2011 and August 2012.


Why are there less companies insolvencies in Germany ?

Since the beginning of the 1990’s, Germany has shown a lower number of insolvencies than France. This article aims to present the main factors which explain, in our opinion, the performance of Germany. Three main factors are identiied: the sound inancial health of German companies, sustained by high proitability; stable inancing sources, even during periods of inancial turbulence; a different insolvency law, encouraging entrepreneurs towards a more prudent management of the enterprise at earlier stages. In view of all these advantages, are German companies therefore immunised against the current fall in external demand, notably of European origin? Econometric analysis reveals that the evolution of insolvencies in Germany is very elastic to the evolution of exports and investment. Now that exports showed signs of weakness over this summer and investment contracted during the second quarter, a return to increased insolvencies is not, therefore, a scenario to be excluded.

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