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For how long can Europe keep businesses from going under?

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In the centre of Florence, near the Uffizi gallery and Cathedral of Santa Maria in Fiore, Pasquale Naccari has serious doubts about whether the seafood and pizza restaurant his family has run for more than 50 years can survive much longer.

“We are in a desperate situation,” said Mr Naccari. “My bank account balance is almost zero for the first time in years and my business is on the verge of collapse; state funding is inadequate, badly distributed and delayed.”

The plight of the Il Vecchio e il Mare restaurant epitomises the existential crisis facing thousands of Europe’s small and medium-sized companies that have had much of their income wiped out by the coronavirus pandemic and the curbs to contain it. 

The eurozone economy fell into a double-dip contraction in the final quarter of last year, shrinking 0.7 per cent from the previous three months, data published this week showed, resulting in a record postwar contraction of 6.8 per cent over the whole of 2020.

However, there is almost no trace of this painful situation in the latest data on the number of businesses filing for insolvency in the eurozone, which fell sharply after the pandemic hit the region last March and stayed lower for the rest of the year.

Experimental data published by Eurostat this week showed a one-fifth drop in businesses filing for insolvency in the eurozone in the third quarter of 2020 from a year earlier. That followed a 41 per cent year-on-year drop in corporate insolvencies in the second quarter. 

The main reason is that governments have spent huge sums to shield their economies from the pandemic.

Bar chart of % of 2020 GDP showing European countries' support for struggling companies

The bloc’s four biggest economies, Germany, France, Italy and Spain, committed to spend an extra $3.1tn — a third of their combined gross domestic product — including vast loan guarantees, subsidies for millions of people’s wages and bailing out scores of companies, according to the IMF

But Mr Naccari said government aid, including subsidised wages for furloughed employees, had often been delayed and was nowhere near enough to offset a 60 per cent drop in his restaurant’s revenues. 

“We cannot cover fixed costs such as electricity, water and gas,” he added. “Some people lack the cash flow to pay the rents of their houses and do their shopping. Those who survive today do so only to fail tomorrow.” 

Pasquale Naccari, a restaurant owner in central Florence. Like many other business owners across Europe, he is struggling because of Covid-19 curbs © New Press Photo

In response, some Italian restaurant and café owners have started disobeying an order to close at 6pm. In Hungary, restaurant owners promised a similar show of civil disobedience during protests in Budapest last weekend.

Even in Germany, where the government has spent more on its pandemic response as a share of GDP than most European countries, there are signs that the second lockdown in force since late last year is taking its toll. 

An Instagram video posted by Bianka Bergler, who was forced to close her hairdressing salon in Dortmund in December, has gone viral with 2.2m views of her appeal for the government to speed up its payments.

“Every day I look at the account with fear,” she said, explaining that she was overdrawn and could not pay her five staff. “No bridging aid has yet arrived.” 

Line chart of Bankruptcies index, 2015 = 100 showing Pandemic stimulus has cushioned eurozone companies from downturn

Her video touched a nerve: German business groups have been complaining for weeks about delays and difficulties in applying for state aid. Helge Braun, chief of staff for German chancellor Angela Merkel, this week called Ms Bergler’s video “startling and impressive” and promised to “ensure that the aid is paid out quickly”.

Berlin recently extended until April a waiver exempting over-indebted companies from having to file for insolvency. But German corporate bankruptcies still broke a long run of monthly declines by rising in both November and December. Several hotels have gone bust in recent months, including Sofitel Berlin, Nordport Plaza in Hamburg and a chain of 10 Holiday Inn Express and Crowne Plaza hotels.

Dehoga, the German hotel and restaurant association, estimates turnover in these sectors fell 47 per cent last year and a recent survey found a quarter of its members were considering giving up. “Many companies are still waiting for the November aid promised on October 28,” said Ingrid Hartges, general manager of Dehoga. “These companies have their backs to the wall.”

A woman walks past a closed hairdresser’s salon in Garmisch-Partenkirchen, southern Germany © Christof Stache/AFP/Getty

Part of the problem is that companies are hitting EU limits on state aid. Ministers from Denmark, Austria and the Czech Republic called in the FT last week for the EU to raise its €800,000 cap on direct grants and €3m ceiling for uncovered fixed cost compensation.

Euler Hermes, the trade credit insurer, estimates eurozone business insolvencies will rise 29 per cent this year after falling 17 per cent last year, with the biggest increase of 73 per cent expected in Italy.

“One in four companies in Europe will be cash constrained this year,” said Maxime Lemerle, head of sector and insolvency research at Euler Hermes. “These zombified companies in hospitality, retail, transport, leisure and events could go bust very quickly even if the support measures are wound down quite slowly.”

In France, a third fewer businesses filed for bankruptcy in the year to November than in the previous year — helped by a temporary waiver on companies being declared insolvent that expired in August, according to the Banque de France.

But the French government still worries that some companies may collapse and last week finance minister Bruno Le Maire said Paris may convert some of its €130bn of loan guarantees into grants.

While most European governments have extended support programmes to this year, some business leaders and officials worry about what will happen when the aid dries up. 

In Greece, banks have granted moratoria to suspend payments on a fifth of their performing loan books.

Yannis Stournaras, governor of the Greek central bank, said: “You never know what is going to happen when this assistance ends — either the moratoria of the private sector banks or the public sector support — and that is the key test. Much will depend on how much growth we have.”





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Europe

German regulator steps in as Greensill warns of threat to 50,000 jobs

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Germany’s financial watchdog has taken direct oversight of day-to-day operations at Greensill Bank, as the lender’s ailing parent company warned that its loss of $4.6bn of credit insurance could cause a wave of defaults and 50,000 job losses.

BaFin appointed a special representative to oversee Greensill Bank’s activities in recent weeks, according to three people familiar with the matter, as concern mounted about the state of the lender’s balance sheet.

The German-based lender is one part of a group — advised by former UK prime minister David Cameron and backed by SoftBank — that extends from Australia to the UK and is now fighting for its survival.

On Monday night Greensill was denied an injunction by an Australian court after the finance group tried to prevent its insurers pulling coverage.

Greensill’s lawyers said that if the policies covering loans to 40 companies were not renewed, Greensill Bank would be “unable to provide further funding for working capital of Greensill’s clients”, some of whom were “likely to become insolvent, defaulting on their existing facilities”.

In turn that may “trigger further adverse consequences”, putting over 50,000 jobs around the world at risk, including more than 7,000 in Australia, the company’s lawyers told the court.

A judge ruled Greensill had delayed its application “despite the fact that the underwriters’ position was made clear eight months ago” and denied the injunction.

Greensill Capital is locked in talks with Apollo about a potential rescue deal, involving the sale of certain assets and operations. It has also sought protection from Australia’s insolvency regime.

Greensill was dealt a severe blow on Monday when Credit Suisse suspended $10bn of funds linked to the supply-chain finance firm, citing “considerable uncertainties” about the valuation of the funds’ assets. A second Swiss fund manager, GAM, also severed ties on Tuesday. Credit Suisse’s decision came after credit insurance expired, according to people familiar with the matter.

While the bulk of Greensill’s business is based in London, its parent company is registered in the Australian city of Bundaberg, the hometown of its founder Lex Greensill.

In Germany, where Greensill has owned a bank since 2014, BaFin, the financial watchdog, is drawing on a section of the German banking act that entitles the regulator to parachute in a special representative entrusted “with the performance of activities at an institution and assign [them] the requisite powers”.

The regulator has been conducting a special audit of Greensill Bank for the past six months and may soon impose a moratorium on the lender’s operations, these people said.

Concern is growing among regulators about the quality of some of the receivables that Greensill Bank is holding on its balance sheet, two people said. Regulators are also scrutinising the insurance that the lender has said is in place for its receivables.

Greensill Bank has provided much of the funding to GFG Alliance, a sprawling empire controlled by industrialist Sanjeev Gupta.

“There has been an ongoing regulatory audit of the bank since autumn,” said a spokesman for Greensill. “This regulatory audit report has specifically not revealed any malfeasance at the bank. We have constructive ongoing dialogue with all regulators in all jurisdictions where we operate.”

The spokesman added that all of the banks assets are “unequivocally” covered by insurance.

Greensill, a 44-year-old former investment banker, has said that the idea for his company was shaped by his experiences growing up on a watermelon farm in Bundaberg, where his family endured financial hardships when large corporations delayed payments.

Greensill Capital’s main financial product — supply-chain finance — is controversial, however, as critics have said it can be used to disguise mounting corporate borrowings.

Even if an agreement is struck with Apollo, it could still effectively wipe out shareholders such as SoftBank’s Vision Fund, which poured $1.5bn into the firm in 2019. SoftBank’s $100bn technology fund has already substantially written down the value of its stake.

Gupta, a British industrialist who is one of Greensill’s main clients, separately saw an attempt to borrow hundreds of millions of dollars from Canadian asset manager Brookfield collapse.

Executives at Credit Suisse are particularly nervous about the supply-chain finance funds’ exposure to Gupta’s opaque web of ageing industrial assets, said people familiar with the matter.

The FT reported earlier on Tuesday that Credit Suisse has larger and broader exposure to Greensill Capital than previously known, with a $160m loan, according to two people familiar with the matter.

Additional reporting by Laurence Fletcher and Kaye Wiggins in London



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FT 1000: Europe’s Fastest Growing Companies

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The latest annual ranking of businesses by revenue growth. Explore the 2021 list here — the full report including in-depth analysis and case studies will be published on March 22



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EU plans digital vaccine passports to boost travel

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Brussels is to propose a personal electronic coronavirus vaccination certificate in an effort to boost travel around the EU once the bloc’s sluggish immunisation drive gathers pace.

Ursula von der Leyen, European Commission president, said on Monday the planned “Digital Green Pass” would provide proof of inoculation, test results of those not yet jabbed, and information on the holder’s recovery if they had previously had the disease.

“The Digital Green Pass should facilitate Europeans‘ lives,” von der Leyen wrote in a tweet on Monday. “The aim is to gradually enable them to move safely in the European Union or abroad — for work or tourism.”

The plan, expected to be outlined this month, is a response to a push by Greece and some other EU member states to introduce EU “vaccination passports” to help revive the region’s devastated travel industry and wider economy. 

But the commission’s proposed measures will be closely scrutinised over concerns including privacy, the chance that even inoculated people can spread Covid-19, and possible discrimination against those who have not had the opportunity to be immunised.

In an immediate sign of potential opposition, Sophie Wilmès, Belgium’s foreign minister, raised concerns about the plan. She said that while the idea of a standardised European digital document to gather the details outlined by von der Leyen was a good one, the decision to style it a “pass” was “confusing”. 

“For Belgium, there is no question of linking vaccination to the freedom of movement around Europe,” Wilmès wrote in a tweet. “Respect for the principle of non-discrimination is more fundamental than ever since vaccination is not compulsory and access to the vaccine is not yet generalised.”

The travel sector tentatively welcomed the news of Europe-wide vaccine certification as a way to rebuild confidence ahead of the crucial summer season, but warned that regular and rapid testing was a more efficient and immediate way to allow the industry to restart.

Fritz Joussen, chief executive of Tui, Europe’s largest tour operator, said “with a uniform EU certificate, politicians can now create an important basis for summer travel”. But he added that testing remained “the second important building block for safe holidays” while large numbers of Europeans awaited a jab.

Marco Corradino, chief executive of online travel agent Lastminute.com, said he feared the infrastructure needed would not be ready in time for the summer season: “It will not work . . . at EU level because it is too complicated and would not be in place by June.”

He suggested that bilateral deals, such as the one agreed between Greece and Israel in February to allow vaccinated citizens to travel without the need to show a negative test result, had more potential.

Vaccine passport sceptics argue it would be unfair to restrict people’s travel rights simply because they are still waiting for their turn to be jabbed. 

Gloria Guevara, CEO of the World Travel and Tourism Council, said it was important not to discriminate against less advanced countries and younger travellers, or those who simply cannot or choose not to be vaccinated. “Future travel is about a combination of measures such as comprehensive testing, mask-wearing, enhanced health and hygiene protocols as well as digital passes for specific journeys,” she added.

A European Commission target to vaccinate 70 per cent of the bloc’s 446m residents by September means many people are likely to go through summer unimmunised.

While some countries around the world have long required visitors to be vaccinated against infectious diseases such as yellow fever, a crucial difference with coronavirus is that those inoculations are available to travellers on demand. 

Questions also remain about the risk of people who have already been vaccinated passing on coronavirus if they contract the disease.

 





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