Berlin's own goal: a series of misses due to the penalty kick

Those who suffer from austerity and stagnation perish. This is the sad apology conveyed by the data on the bankruptcy of German companies published in recent days. According to the Federal Statistical Office (Destatis), insolvency applications rose by 22.4% annually in October (+19.5% revised in September). The growth rate has been in double digits since last June and shows no signs of slowing down. This may be the tip of the iceberg, as statistics only refer to companies that go out of business as part of an organized bankruptcy process, not those that close overnight. The most surprising case was that of Galleria Karstadt Kaufhof, the third bankruptcy in 4 years for the department store chain currently controlled by Austrian businessman Rene Benko, which in turn must rescue his holding company Cigna from $25 billion in debt. However, those who really suffer are the 15,000 workers who risk ending up on the streets from day to day. And also because with the explosion of e-commerce, legacy stores are having to reinvent themselves to survive.

Except that in Germany, it is not only the tertiary sector that is doing poorly. At the beginning of the year, for example, Bree, a leather goods company whose bags were a favorite of Chancellor Olaf Scholz (pictured), also closed its doors. In the German parliament, the Christian Democratic Union, now in opposition, accuses the party of destroying the German economy. 2023 was supposed to end with a complete recession (-0.4%), while 2024 growth should be lower than expected in Italy (consensus is +0.6% vs. +0.7%). In short, Berlin has also trapped itself in a dead-end stagnation, and there is little that can be done.

But since Germany is Europe's de facto leader, its crisis is entirely self-induced. After the European Central Bank insisted on raising interest rates significantly to beat inflation, after it suddenly withdrew funding for the digital and green transition (also because the Constitutional Court discovered $60 billion of off-balance sheet debt), stringency in public accounts punished consumption. In November, retail sales fell by 2.4% year-on-year. If we add to this that the wars in Ukraine and the Middle East and the economic recession suffered by the European Union partners have hurt exports, then a deadly combination is ready.

According to Jonas Eckhardt, a specialist at the consulting company Falkenstig, insolvencies in Germany will rise by more than 30% in 2024 among companies with annual sales of more than 10 million euros. By the end of 2023, only 52% of companies in crisis can be saved from bankruptcy, compared to 62% two years ago. It is natural: the higher the cost of money, the more massive returns expected from renewals of investments to compensate for the risks. In fact, you no longer invest because government bonds reward you without making you risk almost anything. It is very easy to comment with the usual phrase “whoever gets sick should cry for himself” because if Germany gets sick, Italy risks getting sick with Germany, which is one of our main trading partners. It is just another sad story of a declining Europe that risks sinking so as not to detract from a policy of blind austerity that is now self-destructive.