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By Paul Carrel and Andreas Rinke BERLIN (Reuters) – The pardon is over. A one-year waiver on insolvency filings ended in Germany and there are already signs that bankruptcies are starting to pick up in Europe’s largest economy. Germany introduced the exemption last March, when the COVID-19 pandemic struck, as part of a package of measures intended to support businesses, but which led to the accusation that the government was simply propping up “zombie companies” without future. Insolvencies duly fell. But since October, Berlin has phased out the exemption. This year, only companies that had been waiting for state aid granted since November were exempted from applying – until now. Monday is the first business day the exemption no longer applies. “The expiration of the supposed protection means a return to the regular competitive conditions and the transparency of the market economy,” said Patrik-Ludwig Hantzsch of the German credit agency Creditreform. That’s good news for local critics who say the drop in insolvencies is proof in itself that the state has done more than enough and now runs the risk of preventing what economic liberals hail as “creative destruction.” , the term popularized in the 1940s by Austrian economist Joseph Schumpeter to describe unviable firms collapsing to make way for more dynamic new entrants The latest official figures, from January, show that corporate insolvencies fell by 31.1% in the year to 1,108. But the phasing out of the waiver starting in October has yet to be reflected in the data as the cases go to court, the Bureau of Statistics said. Headline figures also belie an increase in open insolvency proceedings, giving an indication of the future trajectory of actual insolvencies. In November last year, a month after the waiver phase-out began, there was a 5% increase in these procedures after a steady decline earlier in the year, a count of notifications from the Federal Office of Statistics shows. of local courts in Germany. The number of open procedures increased 18% in December, before falling 5% in January and then increasing 30% in February and 37% in March. The European Union’s main economic watchdog said last week that EU governments must intervene to prevent a wave of insolvencies by healthy companies struggling due to the pandemic. Bankruptcies in Western Europe are projected to rise by around a third this year compared to pre-pandemic levels, as governments withdraw extraordinary support measures, such as loan guarantees, raising the specter of rising unemployment and large losses. for banks. In Germany, the legal policy spokesman for the parliamentary group of Social Democrats, Johannes Fechner, promised to try one last time this week to convince his conservative partners in the ruling CDU / CSU coalition to extend the exemption for two months. Otherwise, many companies would have to declare insolvency because state aid has not yet been paid, Fechner said. “These companies entered the crisis through no fault of their own and would be entitled to state aid. Thousands of jobs are at stake and the livelihood of families depends on them,” added Fechner. “THERE IS NO TSUNAMI” Industry experts say a retroactive extension would not work. “If a company has to file (insolvency) at the beginning of May, suppliers demand immediate advance payment, customers leave ship and employees resign. The damage can no longer be reviewed,” Lucas Floether, president of the Gravenbrucher Kreis group of insolvency administrators, told Reuters last month. Carsten Linnemann, vice chairman of the CDU / CSU parliamentary group, said the end of the waiver affected only a small number of companies that had applied for state aid for coronavirus and were still waiting for payment. A person familiar with the government‘s estimates said that “a tsunami of insolvency is not expected” in Germany due to other extensive support measures, including a government-backed ‘Kurzarbeit’ short-time facility. The end of the exemption comes after the German economy contracted 1.7% more than expected in the first quarter as a lockdown in place since November to contain private consumption suffocated by the coronavirus. But Berenberg Bank economist Holger Schmieding did not expect an increase in bad debts to delay an economic rebound, as strong global demand and the reopening of the national services economy would be much more important. “In that context, a temporary increase in bad debts will not have a significant impact on confidence and overall spending by businesses and consumers,” he said.