Covid-19: Is the government taking too much risk with state guaranteed loans to deal with the crisis?

It is one of the government’s main measures to support the economy, which has been hit by the coronavirus epidemic. Since spring, cash-strapped businesses can take out state guaranteed loans (PGEs) from their banks. Over 125 billion euros have been borrowed since March, by more than 610 000 companies, mostly small (93% VSEs and SMEs). But the device is a double-edged sword. Because if the borrowers go bankrupt, then it is up to the State to pay the bill: up to 90% of the amount for VSEs and SMEs, and 70 to 80% for large companies.

The EMP system has been launched across Europe. But it is in France that the formula has the most success, ahead of Italy (120 billion euros), Spain (108 billion), the United Kingdom (88 billion) and Germany (55 billion ). And the counters are far from being stopped. The French government has planned a total envelope of 300 billion euros of mobilizable funds. And in mid-October, the Minister of the Economy, Bruno Le Maire, announced an extension of the device by six additional months, until June 2021.

“It’s a great success. EMPs have penetrated the fabric of very small businesses and SMEs, including in companies that did not have very structured banking relationships”, notes Nicolas Véron, economist at the Bruegel think tank and the Peterson Institute. Laurent Munerot, the president of the Union of local businesses (U2P), which represents 2.8 million craftsmen, traders and liberal professions, makes the same observation. “Honestly, there were not many companies that did not have the right to the EMP. By pushing, we even managed to ensure that companies in difficult situation could benefit from it”, he emphasizes. In fact, the rate of refusal of EMP requests is very low: only 2.8% of eligible businesses have been turned away, according to a counter updated weekly by the government.

As a result, the number of bankruptcies has been in free fall since March. Only 20,500 proceedings for reorganization or liquidation have been opened in commercial courts since the start of the year. This is 40% less than in 2019 and 2018. And this phenomenon also affects conciliation procedures, these confidential agreements organized behind closed doors between business leaders in difficult situations and their creditors to avoid the courts. “We have relatively few new cases that are direct consequences of the pandemic”, recognizes Serge Pelletier, lawyer specializing in the law of companies in difficulty.

But for the lawyer, state aid, including guaranteed loans, had a windfall effect that benefited all companies without distinction, even those which were already in difficulty before the pandemic. “The criteria for awarding EMPs are relatively flexible. As long as you are not engaged in a safeguard or receivership procedure and the level of your equity leaves you outside the definition of a company. difficulty according to European rules, the file passes “, notes Serge Pelletier. Supported by these cash inflows, a large number of companies were thus able to avoid filing for bankruptcy. But this situation is not sustainable in the long term. “The government simply postponed the deadline. There is going to be a major economic crisis which will inevitably lead to a wave of bankruptcies. Companies are currently enjoying cash favors. But this situation has the consequence of increasing liabilities. term, it will be necessary to pay “, says Serge Pelletier.

Questioned by franceinfo, Bercy fully assumes this part of the risk.

“The fact that we have a lot less collective proceedings this year is a sign that we have indeed supported widely. But it was a will on our part.”

The Ministry of the Economy

to franceinfo

Aware despite everything of the risk of seeing a large number of borrowers cornered in 2021 by the first maturities of their credits, the government has resolved to lengthen the repayment periods. Bruno Le Maire announced on October 29 that companies in difficulty could request a second year of deferral before starting to reimburse their EMP, in addition to the first blank year already provided for by the device. This announcement prompts forecasters to revise their predictions on the number of bankruptcies in 2021 downwards. Credit insurer Coface thus forecasts an increase in bankruptcy filings of only 16% compared to 2019.

What will be the amount of the PGE bill for the State, and therefore the taxpayer? A first estimate was included in the finance bill (PLF) for 2021, currently under discussion in Parliament. The government, which relies on models made by the Banque de France, expects 4.6% default, or gross losses of 6.4 billion euros spread over six years until 2026. And thanks to premiums generated by borrowings, estimated at 2.9 billion euros, net losses would be reduced to 3.6 billion euros. But this scenario was prepared before the decision to reconfine the country on October 30. Asked by franceinfo about the impact of the reconfinement on its calculations, the Banque de France kicks in. “Unfortunately, we are not authorized to answer them”, explains the financial institution.

The forecasts entered in the PLF in particular do not take into account the new announcements made in October by Bruno Le Maire: the possibility offered to companies to request a deferred repayment of one additional year, until 2022 for loans made this year. , and the extension of the system until June 2021. Bercy does not foresee a strong repercussion of these provisions. “These two elements will have an extremely marginal impact on the amount of the assessment of the State’s losses on this device”, says the Ministry of the Economy to franceinfo.

On the side of the public investment bank Bpifrance, the speech is also rather reassuring. The institution, which acts as the intermediary between the State and the banks in the distribution of EMPs, notes that few companies have spent the money they borrowed. “Our last survey carried out in September on a sample of 600 companies showed that more than two thirds had little or nothing touched their EMP”, explains Philippe Mutricy, director of evaluation, studies and prospecting at Bpifrance. The expert is also confident about the repayment capacities: “In our barometer, more than 19% of companies plan to reimburse in full by 2021. Those who think they will not be able to reimburse are only 4%.” But the representative of Bpifrance nevertheless calls for caution in the face of a particularly unstable situation which can reshuffle the cards from one day to the next.

“We are in a very difficult moment. The situation is changing very quickly and our equations are overwhelmed by the number of unknowns that are added almost every week.”

Philippe Mutricy, from Bpifrance

to franceinfo

In fact, the optimism of some is not shared by others. “I’m starting to see extremely damaged files coming in. These are mainly restaurants and fitness rooms. There is so much nothing on the bank accounts that there is no longer any hope. And sometimes these companies have contracted EMPs “, notes lawyer Serge Pelletier. Yves Marmont, chartered accountant in the Ain and president of the Federation of approved management centers (FCGA) which assist 300,000 small businesses, also sees the situation deteriorate. “There are companies that did not request an EMP at the first confinement and who are applying for it now. So that means that things are tight. Knowing that at the first confinement, I have clients who have it. taken thinking they don’t have to use it. And today not only have they used it, but they are asking for a second “, explains Yves Marmont.

For the time being, the data monitoring the granting of EMPs published by the government does not show an explosion in requests since the reconfinement. This lack of movement does not reassure Laurent Munerot. “When we do not consider the future, we do not take a loan”, worries the president of the U2P.

In the meantime, this weight of uncertainty is felt until Parliament, which must vote before the end of the year the PLF 2021 and its recovery plan of 100 billion euros. “We are going to argue with figures that are already out of date. It is starting to get annoying.”, gets carried away Senator LR Jean-François Husson, general rapporteur for the budget in the Senate, while moderating: “At the same time, I think it is still too early.” To the National Assembly, LREM deputy Bénédicte Peyrol made the same admission of helplessness. As special rapporteur for the “State financial commitments” section of the PLF, it is responsible for tracking the budgetary cost of EMPs. Asked by franceinfo on the impact of the reconfinement on the cost of the device, Bénédicte Peyrol remains undecided: “I can’t tell you if it’s going to double or triple. It all depends on the economic recovery. And, in all humility, I don’t know.”

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