PARIS — Romain Rozier’s cafe should be bankrupt by now.
Since the coronavirus hit last spring, sales at the once buzzing lunch spot in northern Paris are down 80 percent. The only customers on a recent day were a couple of UberEats couriers and a handful of people spaced far apart at the counter, ordering takeout.
“We’re at death’s door,” Mr. Rozier said, tallying the 300 euros ($365) he had made from the lunch shift, well below the €1,200 he used to pull in. “The only reason we haven’t gone under is because of financial aid.”
France and other European countries are spending enormous sums to keep businesses afloat during the worst recession since World War II. But some worry they’ve gone too far; bankruptcies are plunging to levels not seen in decades.
While the aid has prevented a surge in unemployment, the largess risks turning swaths of the economy into a kind of twilight zone where firms are swamped with debt they cannot pay off but receiving just enough state aid to stay alive — so-called zombie companies. Unable to invest or innovate, these firms could contribute to what the World Bank recently described as a potential “lost decade” of stagnant economic growth caused by the pandemic.
“We need to get off of all of these subsidies at some point — otherwise, we’ll have a zombie economy,” said Carl Bildt, co-chair of the European Council on Foreign Relations and a former prime minister of Sweden.
Bankruptcies fell 40 percent last year in France and Britain, and were down 25 percent on average in the European Union. Without government intervention, including billions in state-backed loans and subsidized payrolls, European business failures would have almost doubled last year, according to a study by the National Bureau of Economic Research, a private American organization.
At the Commercial Court of Paris, Judge Patrick Coupeaud, who has handled bankruptcy cases for nearly a decade, sees the difference. “I have about a third fewer people coming to me, because many troubled businesses are being helped by the state,” he said, gesturing to the court’s nearly empty colonnaded marble halls.
By contrast, Chapter 11 bankruptcy filings in the United States rose in the third quarter to the highest level since the 2010 financial crisis, a trend that is expected to continue in 2021, according to an index compiled by the U.S. law firm Polsinelli.
President Biden has proposed a new $1.9 trillion rescue package to combat the economic downturn and the Covid-19 crisis, and last week, the government reported that 900,000 Americans had filed new unemployment claims.
Those statistics are shaping a debate over whether Europe’s strategy of protecting businesses and workers “at all costs” will cement a recovery, or leave economies less competitive and more dependent on government aid when the pandemic recedes.
“Parts of the misery have only been delayed,” said Bert Colijn, chief eurozone economist at the Dutch…
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