White image
Country risk

Contrasting outlook for company insolvencies in Germany & France

In its latest special report into two of the UK’s leading export markets, published on its website today, Coface economists explain why the level of corporate insolvencies was 40% higher in France than in Germany during 2011 (50,485 and 30,099 respectively). The rate of corporate insolvency in Germany in 2011 was 0.78 compared with 1.43 in France and Coface believes this reflects a structural trend which began in the 1990s and has become more marked since 2005.


The study describes in detail the three main factors behind the corporate insolvency gap between France and Germany:

  • Greater profitability of German companies – Significant competitive gains were made after the government’s far-reaching economic and social reforms of 2003. By Q4 of 2011, the profit of German companies after tax, interest and dividends represented 11% of the country’s GDP, compared to only 6% in 2000. In France, profitability has deteriorated from 9% of GDP in 2000 to 6.5% by the end of 2011.


  • Stable sources of external corporate funding in Germany – While self-funding represented over 65% of the capital raised by German companies between 1991 and 2010, the global credit crunch did not have such a severe affect in Germany thanks to the contribution of the country’s savings banks and credit cooperatives. In Germany the total volume of external funding fell by 30% between August 2007 and 2009, compared with a much larger decline of 90% in France.


  • Differences in insolvency law – Historically, German law has been harsher towards insolvent companies than its French counterpart perhaps discouraging company CEOs from taking this course and encouraging more prudent management. In March 2012 however, the law was amended to encourage debtors to act at an earlier stage which may yet increase the number of insolvencies.


  • Coface has not recorded any deterioration in payment behaviour in Germany but could not exclude the possibility if there was a continued slowdown in foreign trade as German companies are very export orientated. Between 2000 and 2011, Coface has calculated that a decline of 10% in exports in Germany was associated with an 8% increase in company insolvencies.

Grant Williams, Coface UK’s Risk Underwriting Director reflected: “Germany and France are the UK’s main export markets in Europe but companies in France are at greater risk of default, particularly in industries such as construction, retail and the automotive sector. We think UK exporters will want to take account of this warning and ensure they thoroughly research the health of all potential trading partners and protect themselves from the risk of bad debt by obtaining credit insurance.