by the finance committee, however, raises the question of the effectiveness and dangers of this device in the medium term. What will be the consequences on the productive fabric? How will businesses be able to honor their reimbursements? The report examines the different avenues and makes eight proposals for a successful exit from EMPs.
Massive use of EMPs likely to affect the economy’s ability to rebound
Thanks to the EMP, companies were able, from the first confinement, to borrow up to three months of turnover . Two types of emergency measures were mobilized:
- of direct transfers and loads of cancellations ;
- of cash tools to enhance corporate cash to help them spread the losses.
This system is intended primarily to deal with the health crisis: 80% of EMPs were granted during the second quarter of 2020. At the end of April 2021, nearly 138 billion euros had been granted to 670,000 companies. The report highlights a sharp drop in interest rates compared to those seen before the health crisis.
The system has been mobilized as a priority in the most affected sectors (accommodation, catering, etc.). Windfall effects were observed, however, as companies were able to use EMPs to refinance pre-crisis debts or to finance investments at reduced cost.
If the device has proven its effectiveness in the short term, its effects in the medium term could be negative:
- companies keep part of the cost of the crisis at their expense (22% against 7% of the European average);
- the prolongation of the health crisis puts companies in difficulty for the reimbursement of EMPs.
According to the report, EMPs promote gross corporate debt and could thus undermine the economy’s ability to rebound. The cost to public finances could then be massive, because 100 billion euros in outstanding amounts have been guaranteed by the State.
Prevent risks to the economy and exit from EMPs
The report recommends anticipating a wave of failures of viable companies by improving their solvency . Without a rapid response to this problem, 15 million jobs would be at risk in Europe . PGEs are a provisional response similar to subordinated debt (in the event of liquidation, its repayment only takes place after that of the other debts).
The report therefore recommends an exit from EMPs in three stages:
- identify as early as possible the companies whose situation compromises a spontaneous recovery;
- guide each company towards adequate responses on the basis of a diagnosis shared between the company manager and creditors;
- treat each company according to its situation (balance sheet clearance, solvency action, debt restructuring, etc.).
The report makes eight recommendations around these three stages in order to ensure a real “after-sales service for PGEs” . They recommend, among other things, additional support for companies, debt clearance plans, tax deductions or the capping of certain loans in order to promote the raising of equity capital.