Why are there currently such high insolvency figures?

Professor Müller, on 9 January 2025, you reported for the month of December 2024 that there were 1,340 bankruptcies of partnerships and corporations in Germany. How should these figures be classified?

Professor Dr Steffen Müller: The current number of bankruptcies of partnerships and corporations is already very high when compared over time. On the one hand, compared to the previous year: we currently have almost a quarter more bankruptcies than in December 2023. On the other hand, compared to an average December in the years 2016 to 2019, i.e. before the coronavirus pandemic: there are now even 54 per cent more bankruptcies compared to these years. These are all high figures that have been building up for many months and are not outliers.

What are the main reasons for this development?

The current high bankruptcy figures in Germany are the result of both catch-up effects and the current economic situation. Firstly, the catch-up effects are due to the European Central Bank's low interest rate policy following the financial crisis in 2009. While the key interest rate had fluctuated between 2 and 4.75 per cent since the beginning of the 2000s, the ECB lowered the key interest rate to between 1.5 and zero per cent between 2009 and 2022. This enabled companies to obtain very favourable loans. In mid-2022, the key interest rate has now risen significantly back to the level we had before the financial crisis. This makes loans more expensive and we are seeing a number of companies experiencing significant difficulties as a result.

Secondly, the current catch-up effects are due to the government support measures during the pandemic. There were temporary changes to insolvency law, changes to short-time working benefits and financial support measures from the state. All of this was cancelled after the end of the pandemic and is having an impact on the financial stability of some companies. Both factors - the period of low interest rates and the support measures during the pandemic - have helped many companies. However, they have also delayed insolvencies. These delayed insolvencies are now coming to light, partly because the current difficult economic situation is also leading to significant cost increases, for example in wages.

That sounds like two external shocks. Nevertheless, one must ask whether government action also played a role here.

It is difficult to determine what part government action played here. Some things were certainly done right. However, one clear mistake made by the coalition government was that it failed to give the economy a clear direction and a consistent economic policy line. This unsettles companies and inhibits investment decisions. Even during the Merkel era, many necessary public infrastructure investments failed to materialise. In addition, neither the Merkel government nor the ‘traffic light’ government have established sustainable and future-proof financing of the pension system. This could lead to rising social security contributions or higher tax subsidies for the pension funds.

Let's take a look at the location factors: What influence do they have on bankruptcies? 

Germany is under pressure, particularly in its core industry - the automotive sector. A technological structural change is taking place there, which is naturally associated with adjustment costs and uncertainties. This change has already led to the bankruptcy of a number of automotive suppliers. Many car manufacturers are struggling with declining profits and sales problems. Nevertheless, I still consider the location factors to be favourable, particularly with regard to employee expertise, the legal system and general stability.

In the short to medium term, however, there is a need to catch up in terms of taxes and duties, bureaucracy and public infrastructure. The good news is that these issues can be solved. The bad news is that real efforts are needed to achieve this. Germany can no longer afford to pursue the same economic policy as before. In the medium to long term, competitiveness will largely depend on Germany continuing to have a well-educated population. Increased public investment in early childhood education, schools and universities is therefore crucial now.

In order to achieve more economic output, the start-up climate could also be improved. Recently, however, there has been more news of young tech companies going bankrupt. Is it actually particularly difficult to be a successful entrepreneur in Germany at the moment?

It has actually been difficult to start a new company in Germany for a long time. This is impressively demonstrated by the World Bank's ‘Doing Business’ indicator, where Germany ranks 125th worldwide in this category. Consequently, the number of start-ups is extremely low and has continued to fall structurally for over 20 years. Across all economic categories, Germany is in a good 22nd place, which of course is not something to be satisfied with.

Let's come back to the current bankruptcy figures: What should politicians do now so that the number of bankruptcies in Germany can be reduced again?

Reducing the number of bankruptcies is not a sensible political goal in itself. It is not the job of politicians to save weak companies. The exit of unproductive companies is part of the market economy and is crucial for Germany's long-term competitiveness.

Companies form the framework for generating prosperity. While some companies are very successful at this, others are less so. The latter must make room so that their resources can be utilised by sustainable companies. Employees can and should be supported during these transitions - but companies should not be kept alive artificially.

The interview was conducted by Wolfgang Sender. 

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