Legions of European companies are succumbing to the final straw of Europe’s largely self-inflicted energy crisis.
Bankruptcy proceedings in the Canary Islands, Spain’s heavily tourism-dependent island chain, soared a whopping 276% year over year in 2022, according to the latest data published by the General Council of the Judiciary (CGPJ) in its report, “The Effects of the Economic Crisis on Judicial Bodies.” The archipelago also saw the highest rate of dismissal claims in Spain, with around 400 of every 100,000 inhabitants losing their jobs.
But this trend is not unique to the Canary Islands, nor indeed Spain. It is happening across large swathes of Europe’s economies, as legions of businesses succumb to the final straw of Europe’s largely self-inflicted energy crisis.
In the EU as a whole the number of bankruptcy declarations initiated by businesses increased substantially (26.8%) quarter-on-quarter in the fourth quarter of 2022, reaching the highest levels on record since Eurostat began collecting EU-wide bankruptcy data in 2015. The number of bankruptcy declarations increased during all four quarters of 2022. As the Eurostat graph below shows, at the current rate of business destruction it won’t be long before businesses are closing at a faster rate than they are opening.
This trend, of course, was not hard to foresee. In August 2022, I warned that the EU’s largely self-inflicted energy crisis and resulting inflation is tipping legions of small businesses over the edge:
After reeling from one crisis to another, Europe’s heavily indebted and deeply debilitated small businesses — the backbone of the economy — face the ultimate threat from energy shortages and soaring prices.
With the specter of stagflation looming large over Europe and the price of energy rising at a blistering pace, hundreds of thousands, perhaps even millions, of small businesses face the grim prospect of closure this winter. In the UK, much of the news cycle in recent weeks has been dominated by the plight of struggling families grappling with surging energy bills. But many businesses are, if anything, in an even worse pickle, since they don’t have price caps on the energy they pay. Some business owners are facing an increase in bills of more than 350%.
Across Europe small and medium-sized businesses (SMBs), particularly in sectors like travel and tourism, culture and hospitality, have borne much of the brunt of the economic fallout of the pandemic. The stimulus packages — including furlough programs, debt moratoriums and low-interest emergency loans — helped to tide over many (but not all) of the worst-hit businesses but that support has ended. Meanwhile many of the economic problems spawned by the pandemic, including supply chain bottlenecks and labor shortages, continue to linger. Energy shortages and surging prices are likely to be the final straw.
In 2022, inflation in the EU tripled to 9.2%, its highest reading ever. According to Eurostat, all economic sectors witnessed a rise in the number of bankruptcies in the fourth quarter of 2022 compared with the previous one. But the hardest hit sectors were transportation and storage (+72.2%), accommodation and food services (+39.4%), education, health and social activities (+29.5%), sectors that had already suffered significantly during the pandemic.
The contrast with the pre-pandemic bankruptcy rate is particularly striking. Compared to the fourth quarter of 2019 — the last quarter before the Covid-19 lockdowns and other pandemic restrictions came into effect — bankruptcies in the accommodation and food services sector surged by 97.7%, while the transportation and storage industry registered a similarly noteworthy 85.7% increase.
As I reported in February, companies in the United Kingdom, now a distinctly non-EU member, are hitting the wall at the fastest rate since the Global Financial Crisis. Much the same is happening across large parts of the European mainland…
Read the full article on Naked Capitalism