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The eco brief. State guaranteed loans: watch out for the increase in private debt


Bruno Le Maire, Minister of the Economy and Finance, during the press conference on the new measures against Covid-19 in Paris, January 14, 2021. (THOMAS COEX / POOL)

By setting up the EMP at the start of the health crisis, the state had given a year before the banks could demand the repayment of loans. The deadline was set for the end of March but the financial difficulties have worsened for many companies and some see repayment approaching with concern. Hence this possible one-year extension before having to repay, announced Thursday by the Economy Minister, Bruno The mayor.

But postponing the repayment deadlines does not solve the substantive problems. The central question is that of corporate debt. A report from the National Productivity Council published a few days ago points to two dangers:

1- The repayment of loans will weigh on the accounts of increasingly weakened companies. The more time passes and the more the sanitary measures tighten, the more the finances of the companies are under strain. Businesses that are viable today should not become insolvent tomorrow because of their debt.

2- The money spent on repaying the credits that accumulate will ultimately be less money spent on investment, innovation and employment.

The EMPs put in place by the government were necessary to help companies keep their heads above water, and Bruno Le Maire, who managed to land the positive arbitration of Matignon, played his role to the full. In all, nearly 640,000 PGEs have been granted by banks for 130 billion euros. But there is a possible side effect: creating what are called zombie companies that survive solely on debt, a bit like the state that goes into debt in the markets, not to invest, but to maintain its administration. In the private sector, this equation does not hold. Until now, there has been a lot of talk about the public debt. The concerns related to private debt could very quickly impose themselves in the economic and political debate.

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