ECB’s Villeroy: No Reason to Expect Greater-Than-Normal Rise in Insolvencies

4 May 2021

By David Barwick – FRANKFURT (Econostream) – European Central Bank Governing Council member François Villeroy de Galhau said Wednesday that although corporate insolvencies will increase, there is no current reason to think that the increase will be more than a return to normal levels.

Speaking at a conference of the Banque de France, which he heads, and the European Investment Bank, Villeroy sought to explain ‘why we should not exaggerate the alarms’ in this respect.

Since March of last year, he said, French insolvencies has been approximately 40% below average, owing in part to pandemic-related obstacles faced by the relevant courts. The more recent rise in insolvencies above ‘this very low 2020 reference’ has still not returned numbers to the 2019 level.

‘A catch-up effect over the coming period would not mean an economic rupture, but a return to a natural rhythm’, he said. As for the risk that insolvencies would do more than simply catch up to the more normal level that might have been expected, ‘[n]othing can be ruled out, but there is no reason to anticipate this today’, he said.

The Banque de France’s monthly survey show companies’ cash flow situation above the long-term average in industry and headed in that direction in services, except for some sectors most directly hit by pandemic containment measures, he said.

Moreover, various public schemes ‘should act as shock absorbers’, he said.

The French central bank’s mechanisms for mediating credit and restructuring debt are operating but ‘not currently seeing an increase in flows’, he said. ‘The gradual reduction of public support will be made in parallel with the rise in activity and company revenues.’

Villeroy added that the 2.3% increase in French business investment in the first quarter was ‘a welcome surprise’.