Global business crisis as companies continue to default on payments

A global risk assessment company is warning that the systemic nature of the current crisis is making the Eurozone unstable in business terms.

Coface, a provider of credit management in Ireland, which carried out a risk assessment to determine the ‘country risk’ based on measuring the average level of payment defaults by companies, returned the following report:

“On the occasion of its 16th Country Risk Conference, Coface is principally issuing a warning about the systemic nature of the current crisis, of which the Eurozone is the epicentre. The situation worldwide has deteriorated since the summer of 2011 with the crisis in the Eurozone worsening. Coface has noted a clean break in companies' payment behaviour in the second half of 2011, with a sharp rise in non payments. For 2011 as a whole, Coface recorded a 19 per cent rise in payment incidents worldwide, with a particularly marked increase (28 per cent ) for companies in the Eurozone.

“The deterioration of average company solidity demonstrates that the crisis is taking a new direction and has attained a global systemic level with Italy entering a recession. The situation appears to differ from the 2008 shock as a result of this critical mass effect, but also because of increased financial interdependence and the exposure of banks both inside and outside the EU to European sovereign debts.”

“In 2012, the combination of significantly weaker growth in Europe with the drying up of credit facilities could significantly affect the companies' credit risk,” stated Coface president, François David.

“The emerging European economies will suffer the most from the contraction in demand and financing movements within the Eurozone,” he added. “Given their exposure to sovereign debt in the Eurozone, Western European banks will be obliged to reduce support to their subsidiaries, which will affect the granting of credit facilities to companies. Assets held by European banks account for 70 per cent of Eastern European GDP. It is also estimated that one-fifth of the growth in the last decade in Eastern Europe can be attributed to dynamic trans-frontier credit. Were the European credit tap to be shut off, there would be a major impact on emerging European economies, which also frequently have a private sector with massive currency debts.”

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