‘Zombie’ Firms Kept Alive by Covid-19 Bailouts, EU Official Says

(Bloomberg) -- Massive Covid-19 bailouts probably kept some “zombie” companies alive when they would normally have gone bust, the European Union’s top antitrust official said on Wednesday.

Regulators usually screen state subsidies to avoid “undesirable effects” such as life support for unprofitable businesses, Olivier Guersent, the head of the European Commission’s competition unit, said at an online conference for the Organization for Economic Co-operation and Development. Those rules were relaxed last year to allow states to support businesses as the pandemic halted normal business activity.

“You can already see that in quite a number of member states the rates of bankruptcies in the 2020 is lower than in any year before,” Guersent said. “That indicates that probably we have zombie companies hanging round. As long as this remains limited, probably it’s an unavoidable side effect of this type of policy.”

More than 3 trillion euros ($3.6 trillion) in potential virus state aid has been approved by the EU so far, “far from what has been spent,” Guersent said.

More than 80% of that went to Italy, Germany and France with Germany tending to give direct grants to companies and Italy relying on loans because it has fewer financial resources, he said.

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