(WOLF STREET) – Europe’s zombie firms are multiplying like never before. In Germany, one of the few European economies that has weathered the virus crisis reasonably well, an estimated 550,000 firms – roughly one-sixth of the total – could already be classified as “zombies,” according to research by the credit agency Creditreform. It’s a similar story in Switzerland.
Zombie firms are over-leveraged, high-risk companies with a business model that is not remotely self-sustaining, since they need to constantly raise fresh money from new creditors to pay off existing creditors. According to the Bank for International Settlements’ definition, they are unable to cover debt servicing costs with their EBIT (earnings before interest and taxes) over an extended period.
The number of zombie companies has been rising across Europe and the Anglosphere – due to of two main factors.